Cost Volume Profit Analysis Of Decision Making Essay

This paper explores Cost-Volume-Profit Analysis in decision making, utilizing six papers of research. Each of these articles deal with some aspect of Cost-Volume-Profit and its use or impact on decision making for financial managers. The paper focuses on the details, methods, and uses of Cost-Volume-Profit Analysis as it can be used by organizations and add benefit to the organization. Cost-Volume-Profit Analysis In Decision Making When studying finance in college almost all classes will cover Cost-Volume-Profit (CVP) Analysis to their students as a tool to help finance managers make decisions in running their organizations. What is CVP and how does it help in decision making? After this question, students should be asking why you would use CVP in decision making. These are essential questions and to answer them, answers the question of using CVP in decision making. The model of CVP is a math model: Ï€j = (pj – vj)xj – Fj where Ï€j = firm j’s profit, pj = firm j’s unit selling price, vj = firm j’s variable costs of producing and selling one unit, xj = number of units produced and sold by firm j, and Fj = firm j’s fixed production, administrative and selling costs. (Magee, R. P., 1975) This is just one model of CVP, there are others that managers use to reach the break-even point, which can help to reach decisions. With this basis with which to work financial managers can now move forward to satisfying the questions in their decision making. Many managers useShow MoreRelatedCost Volume Profit Analysis, Cost, Volume, And Profit1360 Words   |  6 Pagesin costs and revenues as the volume of activity increase can be complex. However, for the purpose of managerial decision making it is possible to simplify these models in a way that makes them easy to use and therefore more readily useful to the ave rage manager. In this case, cost volume profit analysis is simple, with its assumption of output as the only revenue and cost driver, and linear revenue and cost relationships. it provides minimum values in more complex decision-making cases. Cost volumeRead MoreCost Volume Profit ( Cvp ) Analysis989 Words   |  4 PagesWeek Four Test Cost-Volume-Profit (CVP) analysis is an important tool for managerial decision-making. CVP analysis â€Å"is the examination of the relationships among selling prices, sales and production volume, costs, expenses, and profits† (Warren, Reeve, Duchac, 2014, p. 970). When performing a CVP analysis fixed costs, variable costs, contribution margins, and break-even points are required. Fixed costs do not change when the activity base (activities that cause a variation in cost) changes; whileRead MoreBreak Even Analysis Case Study1268 Words   |  6 PagesBreak Even Analysis in Sesuki Mfg. 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Break-even analysis can help a firm make significantly better decisions for the futureRead MoreImportance Of Cost Behaviour At Gouna Limited1377 Words   |  6 Pagesand his own interests when making decisions on new ventures or the development of a new product/service. This means that the Director does not consider other factors that may be influential in the decision making process. Making decisions based on his own interests makes the situation worse as there is no consultation with the rest of the shareholders or any expert that can offer valuable advice. Besides, the decisions are made without proper understanding of the costs ass ociated with different businessRead MoreEssay on Tesla Motors925 Words   |  4 Pagesupper-level management it is important to understand the key components of cost-volume-profit analysis. Identifying objectives including concepts related to CVP is crucial to the absorption of information. The paper provides a summary of Tesla Motors, the company outlined. Explaining the relationship between cost-volume-profit analysis is discussed as well as how the company is using this tool to maximize production and profit. Summary Tesla Motors, Inc. is a company based in Silicon Valley.Read MoreCvp Analysis1448 Words   |  6 PagesCHAPTER 1: COST VOLUME PROFIT ANALYSIS LEARNING OBJECTIVES: At the end of this chapter, you should be able to: * Describe the differences between the accountant’s and the economist’s model of cost volume profit analysis. * Apply the cost volume profit approaches in the calculation of breakeven point, margin of safety, target selling price and sales volume. * Construct breakeven, contribution and profit volume graph. * Apply cost volume profit analysis in a multi product setting *Read MoreCost Volume Profit Analysis Based On The Real World Functioning Of Businesses1537 Words   |  7 PagesCost-Volume-Profit Analysis Based on the real world functioning of businesses, every organization that deals with the process of manufacturing of certain products operates in accordance with the main principle of maximizing its profits. During the performance of daily activities, many business managers face a series of questions related to planning, control and decision making. In order to give answers to all these questions, an additional analysis needs to be considered. It is very important forRead MoreThe Cost-Volume-Profit Analysis923 Words   |  4 Pagesï » ¿The cost-volume-profit analysis (CVP) is used to help companies determine breakeven points and pricing for their products. It is a method of cost accounting Ã¥Å" ¨ased on determining the breakeven point of cost and volume of goods and is useful for managers making short-term economic decisions (Investopedia, 2013). The mechanism of CVP begins with the revenue, so the price point and the volume of units sold (CliffNotes, 2013). A good way to understand the CVP analysis is using a simple incomeRead MoreDecision Making Across the Organization741 Words   |  3 PagesDecision Making Across the Organization Ramonica George ACC/561 January 14, 2014 Grace Kalil Decision Making Across the Organization When it comes to decision making across the organization, managers must have an understanding of cost effectiveness, selling, pricing, and budgeting. The organization must be able to accurately budget for variable cost as well as fixed cost while maintaining an increase in profit and revenue. In this paper, I will discuss the different view-points of decision