MBA 515 Cost Volume Profit Analysis Discussion Responses
Oslow has never utilized CVP methodologies before. You are the new CFO for Oslow Company. How would you convince Mr. Adrian and other executive-level staff that CVP analysis would benefit Oslow Company?
In order to formulate your recommendation, you may want to carefully consider the problem, the three (3) CVP assumptions, collect relevant data and information, critically evaluate the alternatives, and document your recommendations using sound arguments that are well supported, properly vetted, and logically presented.
This report should:
be prepared as a Microsoft™ Word document and attached to the unit discussion thread.
be cut and paste it into your response
explicitly address all required components of this discussion assignment (There is no minimum or maximum in terms of the word count).
consistent with the most current APA writing style
reflect higher level cognitive processing (analysis, synthesis and or evaluation).
Please respond to each student and use references
Student 1 Serge
As Mr. Adrian has said that there is no such thing as a fixed cost, all costs can be unfixed with regard to time. I would agree on his statement, within particular time frame the variable cost can be vital as fix cost ca be mattered in a long term.
Total fixed costs are the sum of all consistent, non-variable expenses a company must pay whereas, total variable cost of a company’s production is equivalent to the total of how much it costs to produce one single unit of product (Indeed Editorial Team, 2021).
The CVP formula can calculate the breakpoint which is the number of units that need to be sold or the amount of sales revenue that has to be generated in order to cover the costs required to make the product (Kenton, 2022).
Breakeven sales volume=Fixed cost/contribution margin.
Contribution margin= sales-variable cost.
In the given statement, there are two types of costs which is Total fixed cost and total variable cost.
Total cost= Total Fixed Cost (TFC)+Total Variable Cost (TVC).
Sales=Total cost + profit.
Or Sales=Total variable cost +Total Fixed cost + profit.
Or Profit= Sales-Total variable cost-Total fixed cost.
Or sale-Total variable cost= contribution margin so, contribution per unit= sale price per unit variable cost per unit, profit volume ratio= contribution/sale * 100.
Breakeven point= Total fixed cost/profit volume ratio.
Margin of safety= Profit/Profit volume ratio.
Now, from the given statement:
Contribution margin= 8000.
Profit volume ratio= 8000/20000*100=40%.
Therefore, profit volume ration is the ratio of contribution to sales.
While talking about Margin of safety we have, Net operating income=20000, Margin of safety=net operating income/profit volume ratio, that is 20000/40%= 5000.
Hence, from the above analysis using the formula of CVP, its can be proved that the company can concentrate in the use of margin safety.
How to calculate total variable cost. Indeed Career Guide. (n.d.). Retrieved from https://www.indeed.com/career-advice/career-development/how-to-calculate-total-variable-costLinks to an external site.
Kenton, W. (2022, March 27). Cost-volume-profit (CVP) analysis. Investopedia. Retrieved from https://www.investopedia.com/terms/c/cost-volume-profit-analysis.aspLinks to an external site.
Student 2 Mirwais
Cost-volume-profit (CVP) analysis is a method of cost accounting that looks at the impact that varying levels of costs and volume have on operating profit. Companies can use CVP to see how many units they need to sell to break even (cover all costs) or reach a certain minimum profit margin. Cost-volume-profit (CVP) analysis is a way to find out how changes in variable and fixed costs affect a firm’s profit.
Cost Volume Profit analysis or CVP analysis helps in identifying the operating activity levels with a purpose to avoid any kind of losses and achieve profits. Moreover, it also helps the to plan for future operations and see whether organizational performance is going on the right track or not. While conducting a business, the company must face various risks and to counter those risks, CVP analysis is an effective tool.
CVP analysis also manages product contribution margin. The contribution margin is the difference between total sales and total variable costs. For a business to be profitable, the contribution margin must exceed total fixed costs. The contribution margin may also be calculated per unit. The unit contribution margin is simply the remainder after the unit variable cost is subtracted from the unit sales price. The contribution margin ratio is determined by dividing the contribution margin by total sales.
Cost volume profit analysis can also help in calculating the breakeven point which is the point at which the profits become equal to zero. This can be done by finding the break-even volume and then using it to make graphical representations. The break-even volume can either be expressed in dollars or in units depending upon the nature and type of the organization.