4/8/22, 11:09 PM Topic: Unit 4: Discussion
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This is a graded discussion: 25 points possible
due Apr 10
Unit 4: Discussion 18 25
Introduction
Cost-volume-profit (CVP) analysis allows managers to see how
changes in costs and volume will affect the company’s operating
expenses and net income (for-profit) or net assets (non-profit).
This form of analysis compares different relationships, such as
the cost of operating and producing goods and services, the volume of goods and services sold,
and the profits generated from the sale of those goods and services. Cost-volume-profit (CVP)
analysis helps managers make rational decisions such as what products and services to offer,
what prices to charge, what marketing strategy to use, and what cost structure to maintain. Its
primary purpose is to estimate how profits are affected by the following five factors: selling prices,
sales volume, unit variable costs, and total fixed costs. The CVP analysis is also extremely helpful
in determining the contribution margin (CM), which is the per-unit revenue from the sale of goods
and services minus the per-unit variable costs (VC) associated with producing the goods o
delivering the services, with the product being the amount remaining to cover the fixed costs (FC)
and ultimately flows into the profits. We, as industry leaders, need to understand those variables
that impact profit maximization, and then make changes, as necessary, to improve our firm’s
financial position. The CVP model is one example of managerial accounting approach intended to
aid managers in making smart financial and operational decisions.
Oslow Company prepared the following contribution format income statement based on a sales
volume of 2,000 units (the relevant range of production is 500 units to 1,500 units).
XXXXXXXXXXSales $20,000
XXXXXXXXXXVariable Expenses XXXXXXXXXX12,000
XXXXXXXXXXContribution Margin XXXXXXXXXX8,000
XXXXXXXXXXFixed Expenses XXXXXXXXXX6,000
XXXXXXXXXXNet Operating Income $ 2,000
One member of Oslow Company (Mr. Adrian) has challenged the fixed expenses. Mr. Adrian says
“There is no such thing as a fixed cost. All costs can be unfixed given sufficient time.” Mr. Adrian
also has made the comment that gross margin is more significant than contribution margin. And
4/8/22, 11:09 PM Topic: Unit 4: Discussion
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he states that since Oslow Company produces multiple products, CVP analysis cannot be
computed. Mr. Adrian has been vocal with his thoughts throughout the production departments of
Oslow Company.
Directions
Due Dates
Initial Post
Online Students: by 11:59 p.m., Wednesday CT.
Blended Students: by at least 5 hours prior to the scheduled class session.
Peer Responses
Online and Blended: Respond to a minimum of two peers' initial postings by 5:00 p.m.,
Sunday, CT.
Initial Posting
Oslow has never utilized CVP methodologies before. You are the new CFO for Oslow Company. How
would you convince Mr. Adrian and other executive-level staff that CVP analysis would benefit Oslow
Company?
In order to formulate your recommendation, you may want to carefully consider the problem, the three (3)
CVP assumptions, collect relevant data and information, critically evaluate the alternatives, and document
your recommendations using sound arguments that are well supported, properly vetted, and logically
presented.
Submission Requirements
This report should:
e prepared as a Microsoft™ Word document and attached to the unit discussion thread.
e cut and paste it into your response
explicitly address all required components of this discussion assignment (There is no minimum o
maximum in terms of the word count).
consistent with the most cu
ent APA writing style
eflect higher level cognitive processing (analysis, synthesis and or evaluation).
Initial Posting Peer Responses
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4/8/22, 11:09 PM Topic: Unit 4: Discussion
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Marina Layvand (https:
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Sunday
Reply
Welcome to unit 4 discussion, everyone!
To begin, let’s identify the multi-step decision process that can be utilized in doing CVP
analysis. To review, those steps are:
1. a. Identify problems and uncertainties.
2. Procure relevant information.
3. Make predictions or estimates about the future.
4. Select among alternatives.
5. Implement the decision, evaluate performance, identify areas for improvement for the
future.
What are some limitations of the CVP analysis, class? Anyone?
(https:
Audra Gustin (https:
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Tuesday
Audra Gustin
MBA515 – Layvand
Unit 4 Discussion
April 6, 2022
XXXXXXXXXXAfter the Oslow Company prepared a contribution format income statement which
included sales, variable expenses, contribution margin, and fixed expenses to total their net
operating income, one member of the company, Mr. Adrian, has challenged the fixed expenses
as he stated that all costs could be unfixed given sufficient time. He also stated that gross
margin is more significant than contribution margin. Since the company produces multiple
products, cost-volume-profit (CVP) cannot be used. As the new CFO, Mr. Adrian and the othe
executives need to understand that CVP analysis would benefit the company. CVP analysis is
also refe
ed to as
eakeven analysis. It is “a cost accounting method that looks at the impact
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4/8/22, 11:09 PM Topic: Unit 4: Discussion
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that varying levels of costs and volumes have on operating profit” (Kenton, XXXXXXXXXXThis
analysis finds how changes in variable and fixed costs affect a firm’s profit. It can show a
company how many units they will need to sell to
eak even or reach a certain minimum
profit.
XXXXXXXXXXAdrian mentioned that gross margin is more significant than contribution margin. Gross
margin is “the classic measure of the profitability of goods and services sold…which is
evenues minus cost of goods sold” (Bragg, XXXXXXXXXXFor this measure, the cost of goods sold is
a combination of variable costs that vary with sales volume and fixed costs that do not vary
with sales volume. On the other hand, contribution margin is revenues minus all variable costs
of sales. “By excluding all fixed costs, the content of the cost of goods sold figure changes to
direct materials, variable overhead costs, and commission expense. Most other costs are
excluded from the contribution margin calculation because they do not vary with sales” (Bragg,
2021). The main difference is that fixed overhead costs are not included in the contribution
margin measure.
The contribution margin as a percentage of sales is the contribution margin ratio calculated by
taking the contribution margin divided by sales (Ga
ison et al., XXXXXXXXXXFor Oslow company, the
CM ratio would be 8,000/20,000 or 40%. This ratio suggests that the total contribution margin
will increase by 40 cents, and net operating income will increase by 40 cents. The CVP
analysis would greatly benefit the Oslow company. This analysis emphasizes the behavior of
costs and is extremely helpful to managers. It can help judge the impact on profits of changes
in selling price, cost, or volume.
Bragg, S. (2021, December 18). The difference between contribution margin and gross margin.
AccountingTools. Retrieved April 5, 2022, from https:
www.accountingtools.com/articles/the-
difference-between-contribution-margin-and-gross-margin.html
Ga
ison, R. H., Noreen, E. W., & Brewer, P. C XXXXXXXXXXManagerial accounting (17th ed.). Tata
McGraw Hill Education Private Limited.
Kenton, W. (2022, March 27). Cost-volume-profit (CVP) analysis. Investopedia. Retrieved April
5, 2022, from https:
www.investopedia.com/terms/c/cost-volume-profit-analysis.asp
(http Richard Gue
ero (https:
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4/8/22, 11:09 PM Topic: Unit 4: Discussion
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In response to Audra,
Gross Margin only focuses on the cost of goods sold rather than the overall factors that
Contribution margin rationalizes other factors as explained in your statement. This analysis
is more accurate on the number and percentage of goods and services being factored in
alance statement. To ensure that Oslow increases their sales and profits from the
products being sold this inquires a balance between the money being invested and
produced to meet the demand and needs in the market. As stated in the textbook, "To
determine the unit sales and dollar sales needed to achieve a target profit, we rely on the
same two approaches that we have been discussing thus far, the equation method o
formula method. This will interpret how Oslow company is spending their finances on the
products in a rational or