CVP Analysis

1 CVP Analysis Mark’s action is unethical because he intends to use dishonest means to get management to approve his proposed new product, the DNA-diamond. The figures will be manipulated to make the fixed costs of production lower so that it seems like it has a lower break-even point.

Using dubious means such as this obtain approval for a product is highly unethical. Cost Volume Profit (CVP) Analysis, also known as the Break-Even Point Analysis can be used to ascertain whether indeed the project is viable and will be profitable to the company and its shareholders in the long run.

CVP Analysis is used to determine the impact of the changes in costs and sales volume on the profit margin. This information can be used to ascertain whether a project is viable or not.

Buy this excellently written paper or order a fresh one from ace-myhomework.com

2 The CVP Analysis formula is as follows: Breakeven Sales Volume= Fixed Costs (FC) / Contribution Margin (CM) (Berry, & Jarvis, 2013).

The contribution margin is derived by subtracting the variable costs from sales. The above formula determines the sales volume at which costs are covered and the business breaks even. CVP analysis is only reliable when the costs entered are accurate. Therefore, in this case, it will indicate a low breakeven point while in essence, the sales volume needed to cover costs will be higher.

CVP analysis is a crucial decision-making tool because it helps managers establish whether certain projects are a worthwhile investment. Management will generally avoid projects that have a high breakeven point because it takes longer to generate a profit with them (Stice, 2016). Mark should avoid falsifying he fixed costs because eventually, management will realize that it takes a higher volume of sales to turn a profit.

3 References Berry, A. & Jarvis, R. (2013). Accounting in a Business Context.Springer Stice, J. (2016). Breakeven and Cost-Volume-Profit (CVP) Analysis. Lynda.com