SCENARIO CONTINUATION: It's New Year's Day, 2016. You just had a great New Year's Eve celebration; you finished analyzing the performance of Clipboard Tablet Company and are ready to charge ahead into the future. As you turn on the TV and try to open your eyes, you notice something strange (again). The TV commentator is saying something about New Year's Day, 2012. You have a sinking feeling, and sure enough, it's back to 1/1/2012. You realize that you are in Time Warp 2. This time you decide to do your decision making differently. You are going to use a technique that you became familiar with last year, CVP analysis. And you are going to decide all of your decisions at once. No feeling your way through it this time. You are going to make all of your decisions now, for the next four years and just cruise through it this time. You analyze the results of your first set of decisions that you made in Time Warp 1, from 2012 to 2015. You have the data, you kept it all. But now you are going to use CVP analysis to help you determine your new strategy. And you have a tool to use, the CVP Calculator. You analyze the results using CVP and develop your complete four year strategy. You decide to make notes about your analysis and your reasoning process; just in case you have to do this again (You are praying that you can finally move ahead this time when you get to 2016.) You finish your report that shows your strategy that you are going to use these next four years during Time Warp 2. And stop and take a big breath before you move ahead into 2012. (In other words – don't run the simulation, yet. Just turn in this report.)
¶ … Profit (CVP) analysis is noted by Cafferky and Wentworth (2010) to be an important decision making tool for managers. CVP helps managers in understanding the connection between the cost and volume with organizational profits in mind.In our previous exercise, we contemplated going back in time and then coming up with the best choices regarding the manufacture of the three handheld devices- X5, X6 and X7. In this study, we use CVP analysis in guiding our decisions on the manufacture of the three product ranges.As Harngren, Datar and Foster (2006) noted, CVP analysis is important in the formulation of product strategy and policy. Our reliance of CVP analysis is based on the fact that it can help in the making of the right choices on our 3 product ranges since the year 2006.This is done without the need for concentrating on the beginning and end of each and every year's product performance levels.CVP as a decision making tool can be used in various ways. It can for instance be used in calculating the break even point as well as the special product price that would help the product to generate profits.In this situation however, our major concern is to achieve a berr performance of the products that the one achieved by one Mr. Joe Schmoe. Our strategy is therefore geared towards the building of a better strategy that can increase the bottom line. Our profit projection should be far much greater than the $954,830,241 which the corporation made between 2006 and 2009 under Mr. Joe Schmoe's leadership. Our strategy is aimed at helping the corporation bag over 100M in profits. This fete should be realized by following the profit distribution strategy over a four-year period as shown in the diagram below. This profit distributin strategy was arrived at after an in-depth examination of the profit that the firm made under Mr. Joe's leadership (In Time Wrap 1 and 2). A review of the outcomes of Time Wrap 1 indicates that X7 as a product requires a lot of efforts in the coming years since it is the future of the corporation's clientele. The R&D allocatioin for this product should therefore be doubled.
The profit allocation strategy
Cost Volume Profit (CVP) analysis for X5
From the available information, we can see that the product X7 has been in the marketplace for about 3 years.Currently X7's enlargement ultimately-based between its shakeout and its readiness. We can aslos see that X7 is very sensitive to pricing. This means that reducing its price ultimately leads to corresponding increase in sales volume.X5 on the other hand has achieved maturity and would therefore not generate much profits.
The table above shows that the sales volume as well as price for the X5 product that is needed in reaching a $100M profit is 1,676,190 product units at $245 with an R&D allocation of 30%.
Cost Volume Profit (CVP) analysis for X6:
X6 has been in the market place for two years. As compared with X5, the clients who want to by X6 have a great concern for quality o f the product when making their purchase decision. The raising of the R&D allocation can help in improving the product quality. There is also a need for increasing the price of the product. In terms of profitability,X6 will be a good bet since it would draw a good number of loyal clients.The CVP analysis is shown below.
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