Research Paper On Cost Volume Profit Analysis

Activity-based costing can be defined as the managers allocate costs depending on the quantity of resources a product or service consumed in the manufacture of goods and services. The activity based

4. Calculate each of the three product’s break-even points using the data in Exhibit 3. Why is the sum of these three volumes not equal to the 1,100,000 units aggregate break-even volume?

The breakeven point is used my companies to prevent loss. The Cost Volume Profit (CVP) is the tool in which to capture the breakeven point. Sometimes it is referred to as the breakeven analysis. The CVP assists the company in identifying future operation need, production costs, and expansion possibilities based on estimating costs, prices, and volumes. This profit response can help Competition Bikes determine the amount of needed sales, what products to manufacture, pricing policies, marketing strategies, and how much profit is actually needed. In this analysis we will assume

From the overhead analysis completed, it analysis six overhead items with associated costs. This analysis also compares numbers from traditional based costing vs activity based costing. With traditional based costing the analysis shows a total product cost number of 641,320 for Titanium bikes, where as ABC method shows a total product cost as 590,715. There is a difference for Carbon bikes as well. The traditional method shows a 679,380 where the ABC method shows a total product cost of 729,985. These numbers show that Competition Bikes could be overpricing the titanium bikes and could afford to lower the cost in order to be more competitive in the marketplace and maybe even bring in more revenue than previous years. As for the Carbon bikes the analysis states that using the traditional method that total product cost was at 679,380. Once the same analysis for total product cost using ABC method for Carbon bikes shows that number to be 729,985. This knowledge gained from getting a better understanding of each bikes specific costs can really help price the product better so that Competition Bikes remains more competitive in the industry.

The traditional costing method is a distribution of manufacturing overhead costs to the actual products manufactured. By using this

This paper provides a brief presentation of Activity-Based Costing methodology, how is used as well as its short comings.

The Hampshire Company was evaluating on which cost system would best fit their needs as a tool to measure the business activity. When conducting this process, Hampshire Company took a look at traditional cost method versus activity based costing.

Break-even point analysis is a measurement system that calculates the margin of safety by comparing the amount of revenues or units that must be sold to cover fixed and variable costs associated with making the sales. In other words, it’s a way to calculate when a project will be profitable by equating its total revenues with its total expenses. There are several different uses for the equation, but all of them deal with managerial accounting and cost management (Break-Even Point, n.d.)

1. Use the Overhead Cost Activity Analysis in Exhibit 5 and other data on manufacturing

Question 4: Calculate each of the three products’ break even points using the data. Why is the sum of these three volumes not equal to the 1,100,000 unit’s aggregate break-even volume?

A company's break-even point is the amount of sales or revenues that it must generate in order to equal its expenses. In other words, it is the point at which the company neither makes a profit nor suffers a loss. Calculating the break-even point (through break-even analysis) can provide a simple, yet powerful quantitative tool for managers. In its simplest form, break-even analysis provides insight into whether or not revenue from a product or service has the ability to cover the relevant costs of production of that product or service. Managers can use this information in making a wide range of business decisions, including setting prices, preparing competitive bids, and applying for loans.

Nowadays, we know that activity based costing system assigns overhead costs to products or services products that using a two-stage process, which focuses on activities. ABC is a relatively new and very important topic in managerial accounting. ABC allows us to find a way that we could determine the profitability of every product, profitability of every customer we serve, and the profitability of our process. Contents in brief, first that comparing potential advantages of ABC versus traditional costing methods. The

While cost is seldom the only criterion used in a make-or-buy decision, simple break-even analysis can be an effective way to quickly surmise the

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.

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