CVP assumption

There are also various cost assumptions used by businesses, with every entity choosing a respective method in accordance to their inventories, based on the effects they

2.) What is the ‘relevant range’ for the cost structure? In other words, at what volume might you expect the fixed and variable costs to change appreciably?

2. What is the total cost? How much of the total cost are labor costs? Capital costs?

One of the major benefits of expansion is the reduction of fixed cost (fixed and selling). The cost is absorbed by 85,000 units instead of 80,000 units resulting in saving of $0.42 per unit.

1. Profitability and decision analyses: Relevant revenues, costs, profit margins, cash flows, and/or net income are appropriately calculated and interpreted.

Question 3: Identify all costs associated with this venture. Categorize these costs as fixed or variable.

Finally, at the facility-level, the five Operations costs are likely to vary mainly with the

As upper-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.

2.) For each expense that is variable with respect to revenue hours, calculate the cost per revenue hour.

Answer: The strategic analysis, as described in the case did achieve its objective of identifying and classifying the products in terms of competitive position and potential. Although the data used for this analysis - specifically the overhead cost data, seems to be based on incorrect cost allocation method and might have led to wrong classification of the products.

According to this method, every unit of the product is assigned all direct, fixed, and variable costs. This method includes the cost of direct materials and labor as well as a portion of the overhead costs associated with it in the final costing of every unit of the product.

The next step would be for management to know precisely how their decision to downsize capacity would impact the firm’s future operating costs, and also identify specific areas in which the firm could achieve additional cost reductions. Additionally, the cost analysis would help forecast the firm’s operating costs and projected profits (or losses) for the upcoming fiscal year. However, before we can proceed with such analysis, an examination of how the various categories of Continental’s costs behave is in order.

8. I would like to remove allocated costs and fixed overheads and see what would be the variable cost. If this is done, you can see that the variable cost hovers around 7 FF. ( Not many of you have done this)

3 variable costs indentified, they are power, operations, material. They are proportional to the revenue intake.

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 for managers to plan carefully how they are going to generate sufficient money to pay down costs and, in this way to result with a profit. As managers are interested in having the adequate information about the influence that certain actions might have on the profitability of the business, "Cost Volume and Profit" analysis plays a significant role by being a potential tool in facilitating the process of making the right decisions regarding planning and control in order to add value to the company. (Trifan and Anton, 2011). To further illustrate the essential impact that CVP analysis has on management authorities in making better decisions, I will refer to and analyze the case of the Hampshire Company which follows as below.