Respond to 2 discussion responses from each file. Please use references/citations to support your response. Don't respond to Ashley.
4/8/22, 11:09 PM Topic: Unit 4: Discussion https://canvas.park.edu/courses/67773/discussion_topics/1414709 1/30 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 or 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). Sales $20,000 Variable Expenses 12,000 Contribution Margin 8,000 Fixed Expenses 6,000 Net 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 https://canvas.park.edu/courses/67773/discussion_topics/1414709 2/30 Search entries or author 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: be prepared as a Microsoft™ Word document and attached to the unit discussion thread. be cut and paste it into your response explicitly address all required components of this discussion assignment (There is no minimum or maximum in terms of the word count). consistent with the most current APA writing style reflect higher level cognitive processing (analysis, synthesis and or evaluation). Initial Posting Peer Responses Unread Subscribed 4/8/22, 11:09 PM Topic: Unit 4: Discussion https://canvas.park.edu/courses/67773/discussion_topics/1414709 3/30 Reply (https:// Marina Layvand (https://canvas.park.edu/courses/67773/users/15746) 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://canvas.park.edu/courses/67773/users/29256) Tuesday Audra Gustin MBA515 – Layvand Unit 4 Discussion April 6, 2022 After 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 other executives need to understand that CVP analysis would benefit the company. CVP analysis is also referred to as breakeven analysis. It is “a cost accounting method that looks at the impact https://canvas.park.edu/courses/67773/users/15746 https://canvas.park.edu/courses/67773/users/15746 https://canvas.park.edu/courses/67773/users/29256 https://canvas.park.edu/courses/67773/users/29256 4/8/22, 11:09 PM Topic: Unit 4: Discussion https://canvas.park.edu/courses/67773/discussion_topics/1414709 4/30 Reply that varying levels of costs and volumes have on operating profit” (Kenton, 2022). This 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 break even or reach a certain minimum profit. Adrian 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 revenues minus cost of goods sold” (Bragg, 2021). For 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 (Garrison et al., 2012). For 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 Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2012). Managerial 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 Guerrero (https://canvas.park.edu/courses/67773/users/59344) Wednesday https://canvas.park.edu/courses/67773/users/59344 https://canvas.park.edu/courses/67773/users/59344 4/8/22, 11:09 PM Topic: Unit 4: Discussion https://canvas.park.edu/courses/67773/discussion_topics/1414709 5/30 Reply 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 balance 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 or formula method. This will interpret how Oslow company is spending their finances on the products in a rational or