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how the concept of CVP is analyzed

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how the concept of CVP is analyzed

I agree on how the concept of CVP is analyzed since it clearly outlines the interrelation between the three elements that is cost, volume and profits.  Another key point noted is the uses of the CVP analysis, which describes how it aid managerial decisions. To emphasis on that, CVP analysis an essential tool in managerial accounting. Mostly management accounting works on estimates to predict various decision around performance and operations. Therefore, when they can categorize costs in two categories that are fixed and variable costs and attach them to the production of goods, it improves the accuracy of estimates done. Therefore, the managers can be able to understand how to minimize costs or understand the number of units they target to sell to meet the profit expectations. Further, the contribution margin is necessary as it is well simplified for understanding by even non-accounting personnel.

Response two

I agree with the presentation of the CVP analysis and more importantly, the real use within a company. The company was able to use CVP analysis to categorize costs into two categories that fixed and variable costs.  The ability of the firm to continue thriving is through ensuring that the costs do not exceed the management expectation. In specific, as mention, they moved from a large local mall to a large site they purchased to reduce costs. The understanding of the way volume and costs affects the profitability is well outlined in the way the company handles their problem. The experience in the firm is also an indication of how the firm uses CVP analysis in making decisions. When the firm understand that the costs are too high, they work to reduce them and increases the volume to improve profits. The company decided to expand into e-commerce as a decision to enhance the quantity sold as well as holding costs low.





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