ACC 650 Week 2 Discussion 2 answer to professor

How can CVP analysis be used to predict future costs and profitability? Describe how CVP analysis is used, or could be used, at your current place of employment. If you have not worked for a company that might use CVP analysis, you may choose a well-known company and describe how you envision that company using CVP analysis. Try to discuss a concept associated with CVP not already addressed by your classmates. Consider using an article to summarize or apply the CVP concepts. To participate in follow-up discussion, choose one of the topics/concepts that a classmate has posted and provide your own reaction to it, adding to what they posted or providing a professional disagreement to their posting.

Please include proper citations in your discussion post. Points will be deducted if proper citations are not used.

Hello, Sir and Class

Discussion

Through CVP analysis, businesses can determine the break-even point and, as a result, be in a better position to predict possible profits or losses that can be made for a given level of activity. It will, for example, be possible to tell whether the existing production capacity for a specific good will lead to a profit or a loss based on an analysis of both the fixed and variable costs that are likely to be incurred. For each level of activity, the firm will, therefore, be able to accurately calculate costs and profits, which leads to more informed decision-making. The speed with which a company can respond to changes in its business environment that can reduce or increase demand is also improved by CVP analysis, as it is easier to calculate expected costs and profits for each option (Jurayevna et al., 2021). In a retail company such as Walmart, CVP analysis can aid in determining whether fixed costs will be covered in an existing or new location based on projections of sales likely to be made. While variable costs can be controlled by changing the volume of stock held and sold, fixed costs will be incurred irrespective of changes in activity. Therefore, a company must ensure that fixed costs are always covered in each location, protecting its overall profitability (Asih & Kuan, 2021). CVP analysis can aid in determining the level of activity or inventory that can cover both fixed and variable costs and, as a result, enable the company to select new locations more effectively and evaluate the performance of existing ones. For an area to be truly profitable, it should cover its fixed and variable costs and break even. The business can also monitor operations more effectively by determining how changes in sales volume can impact costs and profitability.

References

Asih, H. M., & Kuan, C. E. (2021). Cost-volume-profit analysis for uncertain capacity planning: A case study paper. In Proceedings of the Second Asia Pacific International Conference on Industrial Engineering and Operations Management Surakarta, Indonesia.

Jurayevna, T. M., Abbasovich, K. A., Kadirovich, R. N., Keldiyorovich, O. I., & Yashnarovna, I. M. (2021). Improving the CVP-Analysis as a Tool for Management Decision-Making. Turkish Online Journal of Qualitative Inquiry, 12(8).

Beena Shaji

REPLYDDDavid Duren replied toBeena ShajiFeb 16, 2024, 11:36 AMUnreadBeena, When we look at variable cost, what happens to the unit fixed cost incurred if the activity level increases?