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

Compute the annual depreciation charges, On January 1, 2012, a machine was ...

On January 1, 2012, a machine was purchased for $197,100. The machine has an estimated salvage value of $13,140 and an estimated useful life of 5 years. The machine can operate for

What is the original cost of the auto?, I'm having a hard time with this, c...

I'm having a hard time with this, can you please help? I know the dates are imparative also in finding the solution. Stevens purchased an auto on Jan 1, 2001. On December 31, 2003

Standards and budgets, Standards and Budgets Budgets like you recall f...

Standards and Budgets Budgets like you recall from the previous section, are simply plans for expected future performance expressed in quantified monetary terms. Therefore the

What is bad debt expense, What is bad debt expense, using the aging method ...

What is bad debt expense, using the aging method (also called the "percentage of receivables" method), given the following set of facts?   A firm has $80 of gross accounts recei

Use account analysis to determine fixed cost, Reef Office Supplies is inter...

Reef Office Supplies is interested in estimating the cost involved in hiring new employees. The following information is available regarding the costs of operating the Human Resour

Explanation of sales revenue line, The sales revenue line demonstrates the ...

The sales revenue line demonstrates the amount of sales earned throughout the different level of activities. It can be observed that between zero and somewhere between activity B a

Allocation of scarce resourses, LaNora White received her accounting degree...

LaNora White received her accounting degree in 1992. Since graduating, she has obtained significant experience in a variety of job settings. Her skills include auditing, income and

Determine internal rate of return and cash flow statement , A local deliver...

A local delivery company has purchased a delivery truck for $15,000.  The truck will be depreciated under MACRS as a five year property.  The trucks market value (salvage value)

Interest rates and adjust rates, The Federal Reserve adjusts short term int...

The Federal Reserve adjusts short term interest rates based upon their perceptions of the needs in the economy.  Please describe the ways the Federal Reserve can influence interest

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