Essay Cost Volume Profit Analysis

1042 Words5 Pages
Cost volume profit (CVP) analysis and costing for the 21st century has evolved into a very complex and difficult paradigm. Even the most gifted accountants find that grasping the entire concept of accounting for a corporation can be very mind-boggling and difficult. Yet, understanding such a fundamental principle can allow corporations to grow in ways that other, less educated, corporations can never dream to achieve and simultaneously understand the ‘bottom-line’. In this paper we will discuss value costing in the 21st century, other relevant costing methods, and the relevancy of CVP in today’s workplace. Before we criticize and analyze CVP it’s important to have a good understanding of what it does for a company and the accountant.…show more content…
Unfortunately, not all companies are as benign and have the ability to define all their variables, especially when their product is so diverse and complex. Gupta states, “in virtual enterprises it is important to adopt a costing system based on performance and indentifying critical success factors and tracing the measures and metrics to those factors that would ultimately lead to an improved organizational performance and competitiveness and value” (Gupta , 2005). Simply put, due to companies evolving, their way of measuring their success can be better understood through a CVP analysis. But, due to the complexities and many assumptions created by that analysis, I would have to disagree. Gupta also states, “the cost and performance measures in “New Enterprises” have to focus on delivering value rather than merely trying to establish the historical cost (2005). I find this statement very relevant because historical cost only allows the company to see the beginning and the end, and separates them from the present. Understanding the present and ongoing cost is important in determining value of a product and corporation because it possesses the true and present success.
Some of the assumptions of CVP as outlined by accountingformanagenment are: selling price is constant regardless of volume change, costs are linear, with multi-products the sales mix is constant, and manufacturing companies inventories do not change (N.D.). Because of the assumptions
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