Using The Internet Review Of At Least 3 Articles On Profit A

Using The Internet Review At Least 3 Articles On Profit Cost Volum

A. Using the Internet, review at least 3 articles on Profit-Cost-Volume relationship. Summary (300 words or more) the articles in your own words. B. As a manager, why is Profit-cost-volume important in planning? Support your response with numerical example(s). C. Using the Internet, review at least 3 articles on Variable Costing. Summary (300 words or more) the articles in your own words. D. As a manager, discuss how you would use Variable Costing in managerial decisions Support your response with numerical example(s).

Paper For Above instruction

The relationship between profit, cost, and volume is fundamental to managerial accounting and financial decision-making. Analyzing at least three scholarly articles reveals varying perspectives on how this relationship influences business strategy, cost control, and profitability assessments.

The first article emphasizes the significance of the Profit-Cost-Volume (PCV) relationship in determining breakeven points and profit planning. It discusses the concept of contribution margin—the difference between sales revenue and variable costs—and how it impacts fixed costs and overall profitability. The article illustrates that understanding the PCV relationship enables managers to identify the sales volume needed to cover all costs, which is vital for setting sales targets and pricing strategies. It also highlights that once breakeven is achieved, additional units sold contribute directly to profit, emphasizing the importance of volume analysis in decision-making (Garrison et al., 2021).

The second article explores how profit-volume analysis underpins strategic planning by providing insights into the effects of changes in sales volume on profits. It delves into dynamic scenarios, such as fluctuating demand or cost structures, and discusses techniques like margin of safety and operating leverage. The authors underscore that managers can use these tools to assess risk and develop contingency plans. Numerical examples demonstrate that increasing sales volume by a certain percentage can lead to proportional or amplified increases in profit depending on fixed and variable cost ratios, illustrating the utility of PCV analysis in forecasting and planning (Horngren et al., 2019).

The third article examines the application of computational models to optimize sales mix and production levels. It discusses how profit-volume analysis, combined with cost-volume-profit (CVP) graphs, supports decisions concerning product pricing, discontinuation, or expansion. The article also emphasizes the importance of flexible budgeting and scenario analysis in responding to market changes. For instance, a numerical example shows that by increasing the sales volume of a high-margin product, overall profit can significantly improve, guiding managers on resource allocation.

From a managerial perspective, Profit-Cost-Volume analysis is crucial in planning because it helps in setting realistic sales targets, designing effective pricing strategies, and controlling costs to maximize profitability. It provides a quantitative basis for decision-making, enabling managers to evaluate the potential outcomes of various strategic options. For example, understanding that a 10% increase in sales volume can lead to a substantial profit increase encourages investments in marketing or production capacity.

In practical terms, consider a company with fixed costs of $100,000, variable costs per unit of $20, and a selling price of $50 per unit. The contribution margin per unit is $30 ($50 - $20). To determine the breakeven point (BEP), divide fixed costs by contribution margin: BEP = $100,000 / $30 ≈ 3,334 units. Any sales beyond this point contribute directly to profit, illustrating the critical role of volume analysis in planning.

Switching focus to Variable Costing, the reviewed articles highlight its advantages in managerial decision-making. Variable costing considers only variable costs as product costs, treating fixed manufacturing overhead as a period expense. This approach provides clearer insights into the contribution margin and helps in assessing the profitability of individual products or segments.

The first article explains how variable costing facilitates decision-making related to pricing, product line selection, and discontinuation by emphasizing variable costs and contribution margins. It supports managers in short-term decisions where fixed costs are sunk, and the focus is on marginal profitability. An example demonstrates that if a product generates a contribution margin of $15 per unit, and the sales volume increases, the additional contribution directly enhances profitability, assuming fixed costs remain unchanged.

The second article discusses the usefulness of variable costing in performance evaluation and budgeting. It emphasizes that variable costing helps isolate the impact of variable costs on profit and better reflects operational efficiency. An example shows that increasing sales volume from 1,000 to 1,500 units, with a contribution margin of $20 per unit, results in an additional profit of $10,000, providing managers with a clear view of how volume impacts profitability.

The third article addresses how variable costing supports managerial decisions related to optimal production levels and cost control. It discusses the importance of contribution margin analysis in maximizing profitability. For instance, if fixed costs are stable, and the contribution margin per unit is high, increasing sales volume enhances profits significantly.

In managerial decision-making, variable costing enables managers to focus on the contribution margin and variable costs, thus making more informed decisions about pricing, production, and product lines. For example, during a product decline phase, managers can determine whether reducing or discontinuing a product is beneficial based on the contribution margin, regardless of fixed costs.

To illustrate with a numerical example, suppose a product sells for $100, with variable costs of $60 per unit, giving a contribution margin of $40. If fixed costs are $200,000 and the sales volume is 10,000 units, the profit under variable costing is (Contribution Margin per unit × units) - Fixed Costs = ($40 × 10,000) - $200,000 = $200,000 - $200,000 = $0. If sales increase to 12,000 units, profit becomes ($40 × 12,000) - $200,000 = $280,000 - $200,000 = $80,000, demonstrating how volume impacts profitability under variable costing.

In conclusion, both Profit-Cost-Volume analysis and Variable Costing are integral components of managerial accounting, enabling managers to make strategic decisions that optimize profitability and operational efficiency. The understanding of how sales volume impacts profit, and how variable costs influence contribution margins, is central to effective planning, pricing, and cost control. By applying these concepts, managers can better respond to market dynamics and make data-driven decisions for sustainable business growth.

References

  • Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2021). Managerial accounting (16th ed.). McGraw-Hill Education.
  • Horngren, C. T., Sundem, G. L., Stratton, W. O., Burgstahler, D., & Schatzberg, J. (2019). Introduction to management accounting (16th ed.). Pearson.
  • Drury, C. (2018). Management and cost accounting (10th ed.). Cengage Learning.
  • Wikipedia contributors. (2022). Cost-Volume-Profit Analysis. Wikipedia. https://en.wikipedia.org/wiki/Cost%E2%80%93volume_profit_analysis
  • Blocher, E. J., Stout, D. E., Juras, P. E., & Cokins, G. (2019). Cost management: A strategic emphasis (8th ed.). McGraw-Hill Education.
  • Hilton, R. W., & Platt, D. E. (2018). Managerial accounting: Creating value in a dynamic business environment. McGraw-Hill Education.
  • Kaplan, R. S., & Atkinson, A. A. (2019). Advanced management accounting (4th ed.). Pearson.
  • Anthony, R. N., & Govindarajan, V. (2018). Management control systems (13th ed.). McGraw-Hill Education.
  • Shim, J. K., & Siegel, J. G. (2020). Budgeting and financial management for nonprofit organizations. Wiley.
  • Libby, T., Libby, R., & Short, D. G. (2021). Financial accounting (9th ed.). McGraw-Hill Education.

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