Assignment 2: Analyzing Profitability and Other Variables
Cost-volume-profit analysis is an extension of break-even analysis. CVP analysis enables managers to understand cost behavior and the effect on profits in response to a wide variety of influences, such as changes in volume, variable and fixed costs, and price. This helps management make appropriate business decisions. For example, CVP analysis helps management identify a break-even point if volume or costs change or determine the volume necessary for a targeted profit level. CVP analysis can also help management develop a pricing strategy by projecting the effects the different price structures will have on costs and profits.
In this assignment, you will examine how you can use CVP analysis to plan and make various business decisions. In addition, you will analyze financial data of Compnet’s potential product acquisition (Prime Component) and determine the effects on profit due to variations in its costs and sales price.
Part I: Using CVP Analysis for Business Decisions
Respond to the following:
- How will you use CVP analysis to make business decisions at your workplace? Support your answer with examples.
- Using an example from your workplace, distinguish between variable and fixed cost structures. Why might different managers assess the same cost differently?
- How would you use CVP analysis to develop a budget? Elaborate using examples.
- How can the sales department use the CVP tool when analyzing customer profitability?
Write your initial response in a minimum of 500 words. Apply APA standards to citation of sources.
By Saturday, January 30, 2016, post your response to the appropriate Discussion Area. Through Monday, February 1, 2016, review and comment on at least two peers’ responses.
Part II: Performing CVP Analysis
Continuing with the same scenario as in previous assignments for Compnet, complete the following:
- Select the links that follow to download and review the files containing the financial data of the product line.
- Compnet Balance Sheet Income Statement
- Compnet Budget Template
- Recalculate the break-even point on the basis of the following what-if scenarios:
- Variable costs increase by 5 percent.
- The sales price decreases by 10 percent due to an increase in competition.
- Click here to access the CVP template and use it to perform your calculations.
- Create a 4-6 page paper that includes the above calculations and analyzes the decision options.
- Create a one-page memo for your senior management that summarizes your findings and provides recommendations.
Create 5–7-page document in Microsoft Word that includes both the memo and the paper.
Review standard office memo templates available on the internet and create the one-page memo in Microsoft Word considering the audience to whom this information needs to be presented.
Apply APA standards to citation of sources.
Use the following file naming convention: LastnameFirstInitial_M4_A2.doc. For example, if your name is John Smith, your document will be named SmithJ_M4_A2.doc.
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