Some suggest that Cost Volume Profit analysis (CVP) is a key to organizational s

Question

Some suggest that Cost Volume Profit analysis (CVP) is a key to organizational success and one of the most important concepts you will learn in this course. Every strategic decision a company makes can be traced to its impact on CVP. Based on your readings and research, explain to the class why you now agree or disagree with these opinions on the importance of CVP. Cite specific examples of how CVP is used to defend your answer. Can you think of ways to apply CVP analysis to your workplace? You must share specific research in your response.

Explanation / Answer

CVP analysis is very critical for any organization. It helps the company determine how changes in volume and cost affect its' net income.

Example- Suppose, for company A, Its cost can be divided into fixed cost of $50,000, variable cost of $ 20,000 for 10,000 unit sold at $10 each. The contribution margin ration in this case is 80% and break even point is 7,000 units. Now, For increase in each unit sold beyong 7,000 units will generate $ 8 per unit of income .

Workplace- For a burger joint, selling price per burger is $5 per unit and variable cost (bun, patty, sauce, vegetable) cost is $ 2 per unit and fixed cost (rent,depreciation,insurance) is $12,000. In this case, contribution margin is 60% and break even point in units is 4,000. Burger join will start getting profit @ $3 per unit once it start selling above 4,000 units in a month.

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