Critical thinking about cvp, Cost Accounting

Assignment Help:

The Critical Thinking about CVP is described below

CVP is more than just a mathematical tool/device to calculate values such as the break-even point. It can be used for the critical evaluations about the business viability.

For instance, a manager should be conscious of the "margin of safety."  The margin of protection is the degree to which the sales go beyond the break-even point. For Leyland, degree to which sales exceed is approximately

$2,000,000 (its break-even point) is the margin of the safety. This will give a manager some valuable information as they plan for predictable business cycles.

A manager should also recognize the scalability of the business. This refers to the ability to improve profits with rise in volume. Evaluate the income analysis for the Leaping Lemming Corporation and the Leaping Leopard Corporation:

1333_CVP.png


Both the companies "broke even" in 20X1. Which company would you to a certain extent own? If you knew that each company was growing quickly and expected to double sales each coming year


(without any alteration in the structure of their cost), which company would you prefer? With the added information, you would expect the below obtained outcomes for 20X2:


2139_CVP1.png

This study reveals that the Leopard has a much more scalable business model. Its contribution margin is very high and once it clears the fixed cost hurdle, it will turn out to be very profitable. Lemming is fighting a never finishing battle; sales increases are met with considerable increases in the variable costs. Be conscious that the scalability can be a double-edged sword. Pull backs in volume can be shocking to companies like Leopard because the fixed cost load can be consuming. Whichever the condition, managers are required to be fully cognizant of the effects of the changes in scale on the bottom-line performance.


Related Discussions:- Critical thinking about cvp

Requirements of uniform costing, Requirements of Uniform Costing 1. Un...

Requirements of Uniform Costing 1. Uniform costing systems must process the given features as: 2. Cost reports and statements should be organized and laid out in a same for

Algebra in cost accounting, I''m about to take my first cost accounting cl...

I''m about to take my first cost accounting class in college, Do i need algebra skills to do well on this class

Differential costing, explain the practical application of differential cos...

explain the practical application of differential costing with the help of suitable example.

Determine the ratio of the sales, 1) Jodie received a $2000 college entranc...

1) Jodie received a $2000 college entrance scholarship. Nine month later Brian was awarded a $2100 academic proficiency scholarship for his outstanding grades in the first year of

Differential cost analysis, Effects of differential cost analysis in decisi...

Effects of differential cost analysis in decision making

Group bonus plan, #question techniques of payment under group bonus plan ....

#question techniques of payment under group bonus plan .

Calculate the nominal interest rate, A 1- year Canadian bond with a face va...

A 1- year Canadian bond with a face value of 5000 can be purchased at 4800. a) Calculate the nominal interest rate in Canada. b) if the Canadian dollar is expected to depreci

Calculate the gross profit margin, Assets                                  ...

Assets                                               2011                                                                        2010 Non Current Assets

Comment on the cash- flow impacts, Chester & Wayne is a regional food distr...

Chester & Wayne is a regional food distribution company. Mr. Chester, CEO, has asked your assistance in preparing cash-flow information for the last three months of this year. Sele

Calculate the equal monthly payments and cost of financing, Calculate the e...

Calculate the equal monthly payments and the cost of financing on a 25-year mortgage. The cash value of the house today is $500,000. You are paying monthly at a fixed rate of 6% pe

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd