ACCOUNTING PRACTICES

Accounting Practices

Cost Volume Profit Analysis

Cost Volume Profit

The most compelling topic in this course was off course the CVP analysis i.e. Cost volume analysis and the breakeven analysis, talking about the cost volume analysis, from this analysis what I learn is that it's one of the most important tools for managers which helps them in understanding the relation between the cost , volume and profit but with the help of the following elements which are the product price, level or volume of activity, per unit variable cost ,overall fixed cost and last but not the least mix of product sold (Richard, 1990).This tool help managers in decision making process, like for example it can tells the manager which pricing policy should be followed or what product should be manufacture, or even it also tells which market strategy to follow.

Now talking about the contribution margin it is also very important for instance, higher the amount of contribution margin higher will be the spending of the company in terms of per unit sales. Lastly the breakeven analysis, breakeven analysis is a position which shows that at what level of sales the profit will be zero, the most important function of breakeven is that it shows the relation between the production, volume, cost and return. It can further be extended to see the changes on the fixed cost, prices of commodity and revenues etc, in other words it shows the lowest amount of money to run the business which is necessary to avoid losses (Maskell, 2003).

Sales Price per unit

$ 35.00

Direct Material

$ 6.00

Direct Labour Cost

$ 2.50

Sales and Marketing Cost

$ 0.50

Variable Cost per unit

$ 9.00

Team for Product Development

$ 500,000

Amortization Expense

$ 20,000,000

Interest exp.

$ 3,000,000

Fixed Cost

$ 23,500,000

Targeted Net Income

$ 0.00

(0 is assumed to calculate breakeven)

Calculated Volume Profit

903,846

One of the largest utilities that presents the study of the accounting of costs is one that refers to the decision making. Not long ago time , the information on historic cost was irrelevant, but the improvement of technology and methods of production have a need for rapid, timely and effective. The competition has grown steadily, causing it to be necessary to study the costs. Moreover, those who know their costs are at risk of disappearing from the market .

This model assists management to determine the actions to be taken in order to achieve a certain goal, that for-profit companies is called profit. This developed to ...