Submitted by: Submitted by bubblygeeeeeeem
Views: 10
Words: 920
Pages: 4
Category: Business and Industry
Date Submitted: 03/06/2016 08:56 PM
The owner of Dell Computer Corporation, Mr. Michael Dell, mentioned this in one of the company’s annual report, “Facts are your friends.” What are these specific facts that owners and managers of companies have to befriend to achieve success in their business undertakings? These are the three facts that we have to learn in this module: Cost, Volume, and Profit (CVP).
Companies consistently aim for long-term sustainable growth, competitive advantage in a global business platform, corporate social responsibility and many more. On a year to year basis, all these long term strategic plans must be broken down to short-term time line, that is, one year. A one-year period of profit planning done continuously and consistently has to be undertaken by managers to achieve profitable performance.
One of the most frequently asked questions of a manager is-------
“What is the impact on the company’s Net Operating Income, if”
* the selling price per unit will be reduced to keep up with the competitor’s price?
* the advertising budget of Marketing will have a forecasted increase in sales volume?
* the manufacturing operation will shift from direct labor intensive to capital/machine intensive?
* the variable cost per unit will increase?
Cost-Volume-Profit (CVP) analysis is very important in profit planning. What is CVP analysis to a management accountant? It is certainly one of the best friends of a management accountant used in evaluating the relationship of cost, volume and profit levels of the different activities in business. With sufficient and competent knowledge of this relationship, managers can plan, prepare budgets, and make decisions.
* The reliability of CVP analysis is dependent upon the validity of these certain assumptions (Warren et al 7th ed., 2002).
* Total sales and total costs can be represented by a straight line.
* Within the relevant range of operating activity, the efficiency of operations does not change.
*...