A. The profit-cost-volume analysis is useful to determine the changes in the cost and the volume that affects the organization income and the net income. The assumptions made in this analysis are the sales price per unit is kept constant, total fixed costs are kept constant, the variable cost per unit are kept constant, everything produced is to be sold and the costs will be affected only when the activity changes. It requires all the organization cost including the manufacture, administrative cost and selling.
B. The managers use the CVP to determine the sales which allows the organization to get the profits known as targeted income. Managers can display CVP using a chart, graph or any equation. Forming a graph allows the managers to easily give the information. Managers should also conduct a full pledged analysis that seems to be better because it turns the business into simplified environment.
C. The variable costing is the managerial accounting type of concept. This is a costing method which includes the variable manufacturing cost such as the direct materials and the direct labor, the variable manufacturing overhead is the unit product price. To control the costs two types of costing should be used mainly the standard costing and the flexible budgeting. It provides an understanding on the effect of the fixed cost on the profits.
D. Variable costing method allows the managers to analyze the data based on cost of production. Managers will be able to understand the difference between the actual and the budgeted amounts. The company’s do not produce the same number of units every time because the sales differ; managers have the chances to make poor decisions based on the data.
For example, sales may increase during the winter and reduce during the summer. Managers use variable costing method to estimate the future cost of production.
Ijiri, Y., & Itami, H. (1973). Quadratic Cost-Volume Relationship and Timing of Demand Information. Accounting Review, 48(4), 724–737.
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