Discussion: Planning and Managerial Application

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Article summary of Profit-Cost-Volume relationship

          According to Armean & Ardeleanu (2017), this article discusses the cost-volume-profit, its principles, and This research paper emphasizes highlighting the CVP analysis's evaluation as a calculative activity indicator for a company. The major objective of this paper is to approach the concepts like costs, production volume, profit, sales price etc. The implementation of this accounting analysis analyzes the organization performance management.

            With respect to Jiang & Shen, (2017), this documentation states that the CVP analysis is an effective technique for forecasting the realization of targeted profit, cost and decisions analysis of an organization. This accounting technique is utilized in the manufacturing company like a catering organization for analyzing the restaurant's cost nature, safe operational degree, influence on the profit modification etc.

            As per Abdullahi et al. (2017), this paper aims to draw a small business that uses the CVP analysis like equipment used for an effective decision-making procedure. This paper highlights the real-time utilization of this accounting analysis as an efficient decision-making tool in small-scale businesses.

Managerial essentiality of CVP analysis

          Throughout the research, it can be concluded that CVP analysis is generally used as an organizational management tool used by every type of industry to measure the performance of the business, cost, sales, and revenue of the business. The manager uses this analysis tool to improve management performance and develop effective marketing strategies for better revenue and profitability. For instance, XYZ Company wants to make an annual profit of $100,000 from selling the products. The manufacturing capacity is 10000 units with the variable cost per unit of $30 and a fixed price of $30,000.

On the basis of the CVP analysis formula Profit = [(Sales – variable expenses) – fixed expenses]

10000 units x p = [(10000 x 30) + $30000 +$100000]

10000p = ($300000 + $30000 + $100000)

10000p = $430000

Hence, cost for every unit = ($430000/10000) = $43

The cost of $43 per unit refers to the company requiring $43 in their products and selling units of 10000 units to gain $10,000 as the targeted profit. It is conclusive that CVP analysis helps the organization to obtain its targeted profit.

Article summary of Variable Costing

            According to KENNOUCHE & CHABI (2018), this research discusses the analysis of the optimal solution of the linear program to several parameters of the external and internal data of the organization. The article aims to optimize the variable cost in the public-oriented organization alcost Bejaia and minimize the variable cost.

            As per Liu & Tyagi (2017), this article highlights the phenomenon of converting the fixed cost into variable costs, which beneficially impacts the organization's economy by outsourcing service, production, and several economic activities. This research tests the strategic implementation of the role of outsourcing in the oligopolistic configuration. The result of this strategic implication is optimistic for the organization.

            With respect to McLeod et al. (2017), the research study highlights variable costing approaches that determine the interchange between the evaluation constancy and estimation cost. This paper is based on documentation that is utilized the variable cost of Bayesian Optimization. This paper demonstrates the algorithm of Bayesian Optimization to indicate the maximization ion the performance of the application technique in a new environment.

Managerial essentiality of variable costing

          The above articles discuss the concept of variable cost analysis, which is used by every type of organization. The managers use variable costing analysis for internal reporting because it is effective and efficient in making a better decision for the business. This technique of analysis excludes the fixed cost and the selling cost of the product and service. For instance, a mobile cover manufacturing industry receives an order for making 1,000,000 mobile covers at a contract value of $350,000.  Through the evaluation of the contract, the manufacturing company will ensure their profit from the contract. Raw material = $300,000, insurance = $50,000, labor cost = $150,000, fixed cost = $40,000, machinery cost = $100,000, equipment cost= $100,000, variable overheads = $150,000 and number of mobile cover produced = 2,000,000.

According to the formula of variable cost analysis = [(raw materials + labour cost + variable overhead costs) /

Produced mobile covers]

[($300,000 + $150,000 + $150,000 (machinery + equipment +insurance) /

2,000,000] = $0.30 per mobile cover.

Therefore, based on the contract price, per unit cost of production is $350,000/ 1,000,000 = $0.35. It is conclusive that the manufacturing industry will make a profit from this contract.

 

References 

Armean, D., & Ardeleanu, M. L. (2017). Performance management by CVP analysis. Business Excellence and Management, 7(2), 72-93. http://beman.ase.ro/no72/5.pdf 

Abdullahi, S. R., Bello, S., Mukhtar, I. S., & Musa, M. H. (2017). Cost-volume-profit analysis as a management tool for decision making in small business enterprise within Bayero university, Kano. Iosr Journal Of Business And Management (Iosr-Jbm), 19(2), 40-45. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.1064.4734&rep=rep1&type=pdf

KENNOUCHE, S., & CHABI, T. (2018). Analysis of the sensitivity of the variable cost unit case: the company alcost of bejaia. Revue de Recherches en Economie et en Management Africain, 6(6). https://revues.imist.ma/index.php/CREMA/article/download/22672/12095

Liu, Y., & Tyagi, R. K. (2017). Outsourcing to convert fixed costs into variable costs: A competitive analysis. International Journal of Research in Marketing, 34(1), 252-264. http://blog.rchss.sinica.edu.tw/FCLai/wp-content/uploads/2017/07/20170731_Lin_Liu-and-Tyagi-2017_Outsourcing-to-convert-fixed-costs-into-variable-costs-A-competitive-analysis_International-Journal-of-Research-in-Marketing-341-252-264.pdf

McLeod, M., Osborne, M. A., & Roberts, S. J. (2017). Practical bayesian optimization for variable cost objectives. arXiv preprint arXiv:1703.04335. Retrieved on 2020 https://arxiv.org/pdf/1703.04335

Jiang, Y., & Shen, Z. (2017, June). Study on the Application of CVP Analysis in Catering Industry. In The 2nd International Conference on Contemporary Education, Social Sciences and Humanities (ICCESSH 2017). https://www.atlantis-press.com/article/25878726.pdf