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CMA Part 2 CVP Analysis

The document discusses several business factors companies should consider when selecting a manufacturing method and assumptions of cost-volume-profit analysis. Specifically, it mentions considering demand variability, ability to quickly produce and discontinue new products, assumptions like predictable and linear cost/revenue relationships, fixed costs remaining constant while variable costs change with volume, and insignificant changes in inventory. It also lists additional factors for leasing vs buying decisions such as expected obsolescence rates, financing restrictions, and future asset use.

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Nipun Bajaj
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108 views3 pages

CMA Part 2 CVP Analysis

The document discusses several business factors companies should consider when selecting a manufacturing method and assumptions of cost-volume-profit analysis. Specifically, it mentions considering demand variability, ability to quickly produce and discontinue new products, assumptions like predictable and linear cost/revenue relationships, fixed costs remaining constant while variable costs change with volume, and insignificant changes in inventory. It also lists additional factors for leasing vs buying decisions such as expected obsolescence rates, financing restrictions, and future asset use.

Uploaded by

Nipun Bajaj
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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# Business factors that company should consider before selecting a manufacturing method ( Capital intensive/ Labour in

# Description
Variability or uncertainity with respect to demand,
1 both quantity and selling price
The ability to produce and market the new product
2 quickly
The ability to discontinue the production and
3 marketing of the new product while incurring the least
amount of loss

# 4 assumptions underlying cost volume profit analysis are as following:

# Description
Cost and revenue relationships are predictable and
1 linear over relevant range
Total variable costs changes proportionally with
2 volume, but unit variable costs remain constant.
Total fixed cost remains same over the relevant range
3 of volume, but unit fixed costs vary with the volume

Changes in inventory are insignificant in amount, i.e,


4 production equals sales
Unit selling prices and market conditions are constant
5
Revenue (Sales) mix is constant or the company makes
6 and sell only one product
7 Time value of money is ignored
Technology and productive efficiency are constant
8
Revenue and costs vary only with changes in pyhsical
9 unit volume. Hence volume is the sole driver for
revenue and cost
pital intensive/ Labour intensive)
# Other factors to be considered in leasing vs buying decision

# Description
The expected rate of obsolescence due to
technological or economic factors, the lease
1 may have a cancelation course

Any restrictions imposed by banks to obtain


2 financing
Potential use of the asset after the
3 stipulated period

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