Managers Can Use Cvp For A New Power Drill

1190 WordsApr 4, 20165 Pages
Managers can use CVP analysis to evaluate how the operating income of their companies will be affected if the outcomes they predict are not achieved—say, if sales are 10% lower than they estimated. Evaluating this risk affects other strategic decisions a manager might make (2015, p. 79). Because the change of the improvement of new equipment in AWM, Inc., managers will want to know how the profit will change. Will it increase or decrease? “For example, AWM managers might wonder how many units of a new power drill must be sold to break even or make a certain amount of profit. Procter & Gamble managers might ask themselves how expanding their business in Nigeria would affect costs, revenues, and profits. These questions have a common…show more content…
This firm is encountering diminished interest of about all the agricultural products, yet the Universal Harvester reel deals were down more than 70% when contrasted with the earlier year. Our combined gross benefit expanded as a rate of net deals from 24.1% in 2014 to 25.0% of net deals in 2015. This expansion is to a great extent because of cost-cutting measures and effective utilization of stock, basically in our agricultural products segment. AWM, Inc. merged working costs expanded by 4.6%, from $7,060,00 in 2014 to $7,388,000 in 2015. In order for a tremendously in 2016, the operating income will have to change first. For instance, AWM’s has in operating income of $-403,663, so how does they change this negative into a positive? The answer to this question is that they can increase the number of units that’s sold, which will change the contribution margin. Within this change, this will bring up a decision on whether or not to advertising will increase or decrease the sale. Similarly to operating income, the variable cost can be change as well. Another decision that can be made when expanding this firm is the selling price. Does the company want to reduce the price? Reducing the price will cause a decrease in contribution margin and because the fixed cost doesn’t change, the operating income will go change. This mean this decision might not help the company grow, but determining the target price can be an asset for the business. In 2015, the target price was 7.00
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