Module 2 Critical Thinking Notes
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Cost-Volume-Profit (CVP) analysis is a crucial tool for businesses because it helps them make informed decisions about pricing, production levels, and profitability. Here's why CVP analysis is important for a company:
Profitability Analysis:** CVP analysis allows a company to understand how changes in sales volume, pricing, and costs impact its profitability. It helps answer questions like, "How many units do we need to sell to break even or achieve a desired profit?"
Companies can use CVP analysis to set optimal pricing strategies. By knowing their cost structure and desired profit margins, they can determine appropriate pricing levels to remain competitive while ensuring profitability. CVP analysis assists in resource allocation decisions. Businesses can decide where to focus their efforts and resources by understanding which products or services are more profitable. CVP analysis helps identify the break-even point, which
is the level of sales at which total revenue equals total costs. This is a crucial reference point for businesses to assess financial risk and plan for profitability.
To perform CVP analysis effectively, a company needs to understand its costs and classify them into fixed and variable costs. Fixed cost are costs that do not change with changes in production or sales volume. Examples include rent, salaries, and insurance. Fixed costs remain constant within a relevant range. Variable costs are costs that vary in direct proportion to changes in production or sales volume. Examples include raw materials, direct labor, and variable production overhead.
Companies that transition from a highly manual process to an automated one need to consider that after automation, the company's break-even point may decrease. Automation often reduces variable costs, as machines can operate more efficiently and consistently than manual
labor. This can lead to a lower break-even point, allowing the company to cover its costs with fewer sales.
Automation can also affect the degree of operating leverage. With reduced variable costs, the company's contribution margin may increase. A higher contribution margin means that a larger portion of each sale contributes to covering fixed costs and generating profit. This results in a higher degree of operating leverage, which can magnify profits in periods of increased sales but also increase losses in periods of reduced sales.
Pros and Cons of Automating Processes:
**Pros:**
1. **Cost Efficiency:** Automation can lead to lower labor and variable costs, increasing overall cost efficiency.
2. **Consistency:** Automated processes are less prone to errors and inconsistencies compared to manual processes.
3. **Increased Capacity:** Automation can increase production capacity and output, allowing for growth and scalability.
**Cons:**
1. **Initial Investment:** Implementing automation systems can be expensive, with upfront costs for equipment, software, and training.
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Related Questions
When evaluating costs as to whether your company should build "in house" or contract it externally, what should the Objective Function
look like?
Profit/Loss-PurchaseTotalCost-ManufactureTotalCost
O-ManufactureFixedCost+ManufactureUnitCost Q
O No answer text provided.
PurchaseFixedCost+PurchaseUnitCost Q
arrow_forward
Plan for potential investors for 39 Storage
https://www.39storage.com/ (This Company)
Cover these points below
Identify the problem to be solved.
Introduce your solution to the problem.
Discuss your beginning traction for getting sales.
Identify the target market.
Explain the costs of acquiring customers in your target market.
Communicate the value proposition relative to competitors.
Describe the basics of the revenue model.
Provide financial projections, along with the assumptions.
Sell the team.
Identify your funding needs, and explain the use of the funds (the investment price must be stated)
Describe possible exit strategies—how the investors may be able to cash out.
End on a high note—remind investors why your product/service/team is so great.
arrow_forward
Top-down market sizing starts by looking at the current market as a whole,taking a macro view of all the potential customers and revenue, and thennarrowing it down to a section you can realistically target. This gives you yourserviceable obtainable market, (SAM).
Bottom-up market sizing, on the other hand, is where you start with your ownproduct and the basic units of your business and work out how you can scalethem. Where can your products be sold, how much for, and how much of thecurrent market could you command? You start small and build up to the result.
Business: watercraft service and rentals
What is the market sizing of watercraft service and rentals?
Market Sizing
• Top-down approach
•Bottom-up approach
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Please follow the instructions down below
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1. Explain how functional strategies can support an organization's corporate strategy.
2. Explain the new real-options approach used in conditions of high environmental uncertainty.
3. What are the reasons for strategic planners to pay more attention to the importance of planning and implementing an effective pricing strategy in a competitive market?
arrow_forward
A3)
Finance
PHAUCH insurance aims to achieve market leadership in the insurance industry by providing excellent service delivery and superior customer experience for its customers and generating profits by means of customer satisfaction. Demonstrate in your report to Management how PHAUCH insurance can formulate a set of marketing tools to pursue its marketing objectives in the target market.
arrow_forward
Imagine that the company follows a cost-leadership strategy and has a “no cash refunds” policy inorder to reduce company costs. What kind of plan or rules would you develop for your employees tofollow to deliver consistent customer service if a customer wants a refund?C. When might it be ethical to violate the rules you developed in (b) above in order to deliver the rightresponse to a customer service problem?
arrow_forward
“Suppose that you have been given a summer job at J limited, a company that manufactures sophisticated radar sets for commercial aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its tremendous growth. The bank requires financial statements before approving such a loan. You have been asked to help prepare the financial statements and were given the following list of costs:
The cost of the memory chips used in a radar set.
Factory heating costs.
Factory equipment maintenance costs.
Training costs for new administrative employees.
The cost of the solder that is used in assembling the radar sets.
The travel costs of the company’s salespersons.
Wages and salaries of factory security personnel.
The cost of air-conditioning executive offices.
Wages and salaries in the department that handles billing customers.
Depreciation on the equipment in the fitness room used by factory workers.
Telephone expenses incurred by factory management.…
arrow_forward
make your answer long but precise. i'll upvote if i like. thanks
arrow_forward
Which operational risk management approach gives financial institutions leeway to develop a customized model to determine the required capital for operational risk?
a.
Quantitative approach
b.
Basic Indicator approach
c.
Standardized approach
d.
Advanced Measurement approach
arrow_forward
You have been hired by a regional supermarket chain as the candy andsnack buyer. Your shelves are dominated by national firms such asWrigley’s and Nabisco. The chain imposes a substantial slotting fee toallow new items to be added to their stock selection. Managementreasons that it costs a lot to add and delete items, and besides, theseslotting fees are a good source of revenue. A small, minority-operated,local firm produces several potentially interesting snack crackers and aline of gummy candy, all with natural ingredients, added vitamins,reduced sugar, and a competitive price—and they also happen to tastegreat. You’d love to give the firm a chance, but its managers claim theslotting fee is too high. Should your firm charge slotting fees? Areslotting fees fair to the relevant shareholders—customers, stockholders,vendors?
arrow_forward
Manufacturers of inkjet printers (e.g. HP, Canon, and Lexmark) make most of their profits on the sales of ink cartridges.
Why are cartridges more profitable than printers?
If cartridges were manufactured by different organizations to those that produce the printers, would the situation be different? Explain.
give example.
arrow_forward
Using your knowledge of the marketing mix (4P or 7P depending on your market offering), design a strategy for your business.
arrow_forward
What is marketing mix? In your opinion, which of the marketing mix elements is more critical in which period of the product life cycle for a highly complex, totally new product?
2. Discuss the growth strategies. If your company/product is experiencing threat of substitute products or direct competitors, which of the growth strategy do you think are less suitable, why?
3. Among the three major functions of an organization, finance has two distinct tasks. What is the function/ role of finance department in organizations and why is this department important? What are the different methods that a start-up can reach funding, please describe and discuss advantages and disadvantages of internal and external funding methods.
4. Describe the concept of guerrilla marketing. Why is guerrilla marketing particularly suitable for entrepreneurial firms?
arrow_forward
You are advising a coffee shop manager whowants to estimate how much sales will change ifthe price of a latte rises. Explain why he shouldmeasure elasticity in percentage terms rather thanin terms of dollars and cups
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Roberto is selling his house. His neighborhood
is experiencing a strong seller's market. What
can Roberto reasonably expect during this
home selling process?
Buyers are going to ask for concessions and
want him to help pay for
their closing costs.
The home will sell quickly and at a high price.
The home will spend a long time on the market
before he gets a
good offer.
Buyers are going to make offers well below the
asking price.
arrow_forward
Welcome to The Fresh Connection company! As newly appointed Vice President, your task is to save your company from bankruptcy and make it as profitable as possible. The shareholders and all your employees are counting on you to make The Fresh Connection successful again! What will be your strategy when deciding on purchasing, operations, sales, and supply chain? What will be your long-term survival and changes?
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As discussed in the class that each of the forms of business has different advantages as to the transferability of interest. Answer in your own words that how the limited partners and general partners sell their interest if they want? Can a corporation shareholders transfer their shares? In the marketing plan, the 4 variables i.e. Product, Price, Place and Promotion is called ----------?
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Reasons for doing the business model analysis What do we think of our enterprise-level offering? Is this information going to be helpful to our company?
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No chatgpt answer i will give 5 upvotes
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The competitive test that a
business plan must pass to
attract financing from lenders
and investors involves proving
that a market for the
company's product or service
actually does exist, and that
the company actually can
build it for the cost estimates
in the plan.
O True
O False
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If the weak form of efficient markets holds, then
Both B and C
Both A and B
Stock prices reflect all information contained in past prices.
Technical Analysis is useful
Stock prices reflect all information contained in past prices.
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Solve this now but correctly.
Not explain in excel work.
Typed or handwriting only.
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Evaluate potential solutions
Show thoughtful and complete consideration of each proposed solution’s pros and cons.
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Read the Wall Street Journal article, "Boeing Board Accused in Lawsuit of Lax Oversight During 737 MAX Crisis."
This lawsuit is a great example of "shareholder activism." Boeing's shareholders took action when they felt the management failed to maximize their long-term value, and the board of directors failed to fulfill its
fiduciary obligation to protect the interests of the shareholders.
Respond to the following questions based on theories and concepts in Chapter 9.
Q3-1. What are the role and duties of the broad of directors in corporate governance? Assuming Boeing shareholders' complaints are true in this lawsuit, in what ways did Boeing's board fail to fulfill its fiduciary
duties to the shareholders?
Q3-2. Assuming the shareholders' complaints are true, what are some likely reasons that Boeing's board failed to effectively fulfill its duties?
Q3-3. We learned in Chapter 9 the importance of making sure the management acts in the best interests of shareholders. After reading the…
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You are looking to buy stock in a high-growth company. Which of the following ratios best indicates the company's growth potential?(a) Debt ratio(b) Price/earnings ratio( c) Profit margin( d) Total-assets-turnover ratio
arrow_forward
What solution does Prospect Theory offer to the equity premium puzzle?
Does price momentum or earnings momentum pose a greater issue for the Efficient Markets Hypothesis? Why?
What is p-hacking? Why might we question the validity of results discovered using this process?
arrow_forward
Here’s what Nederlander’s chief operating officer has to say about its business model: “A show has a short lifetime. You go and sell two months out, and the tickets have no value on any day but the day of the show. So it’s a very interesting model in that sense.” How do you think the short life of the company’s products affects its financial planning?
arrow_forward
The most likely strategy to reduce the break-even point should be to1. Increase fixed costs2. Decrease selling price3. Increase variable costs4. Increase selling price
what is the best answer?
arrow_forward
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- When evaluating costs as to whether your company should build "in house" or contract it externally, what should the Objective Function look like? Profit/Loss-PurchaseTotalCost-ManufactureTotalCost O-ManufactureFixedCost+ManufactureUnitCost Q O No answer text provided. PurchaseFixedCost+PurchaseUnitCost Qarrow_forwardPlan for potential investors for 39 Storage https://www.39storage.com/ (This Company) Cover these points below Identify the problem to be solved. Introduce your solution to the problem. Discuss your beginning traction for getting sales. Identify the target market. Explain the costs of acquiring customers in your target market. Communicate the value proposition relative to competitors. Describe the basics of the revenue model. Provide financial projections, along with the assumptions. Sell the team. Identify your funding needs, and explain the use of the funds (the investment price must be stated) Describe possible exit strategies—how the investors may be able to cash out. End on a high note—remind investors why your product/service/team is so great.arrow_forwardTop-down market sizing starts by looking at the current market as a whole,taking a macro view of all the potential customers and revenue, and thennarrowing it down to a section you can realistically target. This gives you yourserviceable obtainable market, (SAM). Bottom-up market sizing, on the other hand, is where you start with your ownproduct and the basic units of your business and work out how you can scalethem. Where can your products be sold, how much for, and how much of thecurrent market could you command? You start small and build up to the result. Business: watercraft service and rentals What is the market sizing of watercraft service and rentals? Market Sizing • Top-down approach •Bottom-up approacharrow_forward
- Please follow the instructions down belowarrow_forward1. Explain how functional strategies can support an organization's corporate strategy. 2. Explain the new real-options approach used in conditions of high environmental uncertainty. 3. What are the reasons for strategic planners to pay more attention to the importance of planning and implementing an effective pricing strategy in a competitive market?arrow_forwardA3) Finance PHAUCH insurance aims to achieve market leadership in the insurance industry by providing excellent service delivery and superior customer experience for its customers and generating profits by means of customer satisfaction. Demonstrate in your report to Management how PHAUCH insurance can formulate a set of marketing tools to pursue its marketing objectives in the target market.arrow_forward
- Imagine that the company follows a cost-leadership strategy and has a “no cash refunds” policy inorder to reduce company costs. What kind of plan or rules would you develop for your employees tofollow to deliver consistent customer service if a customer wants a refund?C. When might it be ethical to violate the rules you developed in (b) above in order to deliver the rightresponse to a customer service problem?arrow_forward“Suppose that you have been given a summer job at J limited, a company that manufactures sophisticated radar sets for commercial aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its tremendous growth. The bank requires financial statements before approving such a loan. You have been asked to help prepare the financial statements and were given the following list of costs: The cost of the memory chips used in a radar set. Factory heating costs. Factory equipment maintenance costs. Training costs for new administrative employees. The cost of the solder that is used in assembling the radar sets. The travel costs of the company’s salespersons. Wages and salaries of factory security personnel. The cost of air-conditioning executive offices. Wages and salaries in the department that handles billing customers. Depreciation on the equipment in the fitness room used by factory workers. Telephone expenses incurred by factory management.…arrow_forwardmake your answer long but precise. i'll upvote if i like. thanksarrow_forward
- Which operational risk management approach gives financial institutions leeway to develop a customized model to determine the required capital for operational risk? a. Quantitative approach b. Basic Indicator approach c. Standardized approach d. Advanced Measurement approacharrow_forwardYou have been hired by a regional supermarket chain as the candy andsnack buyer. Your shelves are dominated by national firms such asWrigley’s and Nabisco. The chain imposes a substantial slotting fee toallow new items to be added to their stock selection. Managementreasons that it costs a lot to add and delete items, and besides, theseslotting fees are a good source of revenue. A small, minority-operated,local firm produces several potentially interesting snack crackers and aline of gummy candy, all with natural ingredients, added vitamins,reduced sugar, and a competitive price—and they also happen to tastegreat. You’d love to give the firm a chance, but its managers claim theslotting fee is too high. Should your firm charge slotting fees? Areslotting fees fair to the relevant shareholders—customers, stockholders,vendors?arrow_forwardManufacturers of inkjet printers (e.g. HP, Canon, and Lexmark) make most of their profits on the sales of ink cartridges. Why are cartridges more profitable than printers? If cartridges were manufactured by different organizations to those that produce the printers, would the situation be different? Explain. give example.arrow_forward
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SEE MORE QUESTIONS
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Management
ISBN:9781259929434
Author:William Nickels
Publisher:McGraw-Hill Education
Management (14th Edition)
Management
ISBN:9780134527604
Author:Stephen P. Robbins, Mary A. Coulter
Publisher:PEARSON
Spreadsheet Modeling & Decision Analysis: A Pract...
Management
ISBN:9781305947412
Author:Cliff Ragsdale
Publisher:Cengage Learning
Management Information Systems: Managing The Digi...
Management
ISBN:9780135191798
Author:Kenneth C. Laudon, Jane P. Laudon
Publisher:PEARSON
Business Essentials (12th Edition) (What's New in...
Management
ISBN:9780134728391
Author:Ronald J. Ebert, Ricky W. Griffin
Publisher:PEARSON
Fundamentals of Management (10th Edition)
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ISBN:9780134237473
Author:Stephen P. Robbins, Mary A. Coulter, David A. De Cenzo
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