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¶ … Profit analysis is a financial accounting methodology that has myriad uses in the manufacturing industry and other sectors like the restaurant, energy, and banking industry (Brugger, 2013). It helps in business management. Some of the specific uses of cost volume profit analysis include goal setting, pricing strategy, operational efficiency, and marketing strategies (Brugger, 2013).
Cost profit volume (CVP) analysis is principally used to position management to se more informed, data driven, and realistic business goals (Brugger, 2013). Setting realistic business goals calls for integration of short and mid term objectives with annual objectives. By using CVP the goals are deemed tangible as opposed to being treated as wish-lists (Brugger, 2013). This is because the goals can be tied to specific data.
Companies engage in marketing with a view to attaining profitability. Companies must therefore know the costs that are...
Business enterprises must be in a position to adjust matrices like the volume of goods produced to determine changes that come along with such an action before such actions are implemented. This is integral in deciding if a particular marketing strategy is worthwhile (Brugger, 2013). If upon doing a CVP analysis it is realized that a 10% increase in sales volume can offset the costs incurred in marketing, a strategy can be instituted that stipulates what should be done to make it successful.
Cost volume profit analysis can also be used to enhance operational efficiencies. It can help management in locating areas of potential efficiency improvement (Brugger, 2013). When a company realizes that hard costs are an inordinate amount of overall costs, it is likely to secure lower cost vendors. This has a direct bearing on the profit…
References
AccountingExplained (2011). Cost Volume Profit Analysis. Retrieved August 28, 2013 from http://accountingexplained.com/managerial/cvp-analysis/
Brugger, T. (2013). The Uses of CVP Analysis. Retrieved August 28, 2013 from http://www.ehow.com/info_8422398_uses-cvp-analysis.html
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