Article Review of the concepts of Managerial Accounting- CVP and Variable Costing

Article Review of the concepts of Managerial Accounting- CVP and Variable Costing

1. According to Navaneetha et al., (2017), CVP can scrutinize the changes that occur in profit, costs, and overall sales revenue of a product. The study has been conducted on Nestle Limited, and the authors identified that when Nestle Limited faced difficulties in conducting operations and facing financial issues, CVP has helped to provide useful data and information regarding the changes. The purpose of using CVP is to determine the units of product that should be sold to gain profit. The goal of the business is to reach the break-even point. Decisions can be taken before incurring losses in the business. Again, according to Budugan & Georgescu, (2008), CVP can be used to calculate approximately the earnings of a business. Nowadays, CVP has been widely used in companies, and it is considered as a useful accounting tool. The authors suggested that in comparison to the full costing methods, CVP can accurately identify costs involved in operations, equipment, and sale activities. Additionally, CVP can be regarded as a useful method of calculating earnings. Changes in sales, profits, and volume are bound to occur, and CVP outlines the implications of the resultant changes. The last article on Variable Costing focuses on the impact of using the Variable Costing technique and ways it can change the perceptions of the managers. According to Novak et al. (2016), managers can use the Variable Costing technique to prepare the production mix. The method has been compared with the throughput accounting technique, and the study reveals that the techniques do not determine the fixed costs. It is a similarity between the two techniques. One significant difference between the two is in the case of Variable Costing; changing costs are examined while in the case of throughput accounting, total variable costs are acknowledged.
2. A manager can utilize the CVP and the Variable Costing technique to get insights regarding cost levels and variations in volume. They can estimate or plan the favorable prices and then launch the product in the market. For instance, a firm has created 20,000 gadgets, and after adding the cost of labor and raw materials, the total cost became $105,000 (Raw material = $25,000 and labor cost = $80,000). Now, the variable cost can be calculated. It is 10,000*(125+0.40). The total is 5,250. The company can expect to earn $4000. It is derived by subtracting $5,250 from $10,000.
3. As stated by Pavlatos & Paggios, (2009), in the Greek hospitality industry, the hotels have been benefitted after adopting contemporary accounting methods and practices. The study aimed to understand the adoption level of accounting techniques. A survey has been conducted on 85 Greece-based hotels, and the authors have discussed the individual accounting practices of the hotels. The findings suggest that the hotels that adopted Variable Costing have been benefitted because the technique has several advantages. It helped the hotels identify expenditure levels at different sales and production levels. Decisions related to service pricing has been determined to achieve optimum profit levels. As per Fisher & Krumwiede (2012), it is essential to identify the correct costing approach as it can increase the dividends for the organization. Both the Normal Costing and Variable Costing methods are useful and bear similar results. However, the study findings suggest that Variable Costing can control the costs of the organization. For instance, the supervisors of the production department within a firm can control the costs of direct materials by using the Variable Costing method. On the other hand, the supervisors cannot control insurance-related costs of the production building. Hence, other than non-controllable costs, the supervisors have control over certain types of expenses. Lastly, the chosen article on CVP identifies the existing complexities within a bank and ways in which traditional CVP is implemented and practiced in the service sector, such as banks or financial services. According to Basu & Conrad (1994), traditional CVP is still applicable in banks, and it can solve the day-to-day complexities. CVP is also termed as breakeven analysis, and while using the technique, certain assumptions are made. For instance, revenues and costs are considered as linear entities, productivity and efficiency remains constant, overall fixed costs also remain consistent, and volume decides the costs of the production.
4. A manager or supervisor of the product department can use the techniques to predict expenses and volume incurred in production. The manager can also find out the consequences of short-term predictions and decision-making. For instance, a company decides to create an annual profit of $200000 and 20000 units is the production cost, while $30,000 is the fixed cost. The variable cost is $30/unit. The annual profit goal can be achieved by the following calculation: 20000*p= $60000+ $200000+ (20000*30) = $860000. $43 is the price/unit. It is achieved by dividing $860000 by 20000.

References

Basu, O. N., & Conrad, E. J. (1994). Cost-volume-profit analysis: Uses and complexities in a bank. Journal of Performance Management, 7(2), 58.

Budugan, D., & Georgescu, I. (2008). Use of the cost-volume-profit analysis to estimate earnings. AnaleleStiintifice ale Universitatii “AlexandruIoan Cuza” dinIasi-Stiinte Economice, 55, 3-8.

Fisher, J. G., & Krumwiede, K. (2012). Product costing systems: Finding the right approach. Journal of Corporate Accounting & Finance, 23(3), 43-51.

Navaneetha, B., Punitha, K., Rashmi, M. J., & Aishwariyaa, T. S. (2017). An analysis of cost volume profit of Nestlé limited. International Journal of Commerce and Management Research, 3, 66-68.

Novak, P., Papadaki, Š., Hrabec, D., & Popesko, B. (2016). Comparison of managerial implications for utilization of variable costing and throughput accounting methods. Journal of Applied Engineering Science, 14(3), 351-360.

Pavlatos, O., & Paggios, I. (2009). Management accounting practices in the Greek hospitality industry. Managerial Auditing Journal.