Cost Volume Profit Analysis 2022

Cost Volume Profit Analysis
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Executive summary
The Cost Volume profit analysis has been done in respect of the Canberra Brave Ice Hockey
team so that they can robustly increase their profitability. They are intended to sell new apparels,
flex hats and skates as additional products. They have implemented the use of radio, television
and the internet as a cost control method. The risk that is associated with the recommendation is
large competition and a change in the price of the available raw materials. This will be mitigated
by efficient marketing and advertisement.
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Table of Contents
Introduction......................................................................................................................................4
Recommendation for Additional Product to be sold.......................................................................4
The Cost-Effective Method.............................................................................................................6
The Cost Associated With the Proposed Method............................................................................6
Risk Associated With the Recommendation...................................................................................9
Affordability of the Product for the Customers...............................................................................9
Alternatives for the Business Model................................................................................................9
Conclusion.....................................................................................................................................10
Reference.......................................................................................................................................11
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Introduction
The acquisition of a new company brings in various new opportunities for growth and improving
the overall performance. The profitability of the company tends to increase drastically with
proper sales and advertisement of the available products. The recent acquisition of Canberra
Brave Ice Hockey Team will improve the profitability of Dan and Donn. Thus, this report tends
to recommend additional products that are to be sold for an increase in the sales and implement
proper cost-effective method in respect of the games at home. The various cost will be analyzed
and the risk that is associated with the recommendation will also be evaluated in a significant
manner. Having an affordable product will improve the competitiveness of the company in
respect of the current market competitions.
Recommendation for Additional Product to be sold
The most effective sector for the expansion of the product is Ice Hockey. It has been determined
that the CARG rate of growth of the ice hockey equipment is 3.8 per cent. The sector has seen a
boost in the overall sales as the rate of participation in Ice hockey has drastically increased over
time. The children, men and women have seen a rise in the overall interest in Ice Hockey. This
has been supported with a range of apparels and non-apparel merchandise such as novelty
mascot toy and cups of their favourite team. The average attendee for every match range within
19,000 to 21,000 people. This opens up a large customer base for the company (Subic, 2019).
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Figure. 1: Market Size of Ice Hockey
(Source: Mordor Intelligence, 2019)
From the following figure 1, it has been determined that there is quite a demand for ice hockey in
Australia in a global aspect. Canberra Brave needs to focus on new products for the sale. These
products are core to the sports of Ice Hockey. The company should focus on base layer tops for
woman and pro base layer long sleeve for men. This will be perfectly comfortable for the players
and provide them with flexibility during the game. The company will also focus on base layer
pants for both men and woman. Another apparel product that will be focused on is the softshell
jackets which will provide additional comfort during travelling. The focus of new products will
not only be limited within the apparels but there will more products which are pro skates. The
product range will also include flex hats for the people who come to visit the game (Turcotte,
Renaud and Pearsall, 2016). Thus, three additional products will be pro base layer apparels for
men and women in addition to pro skates. There will additional merchandise of flex hat for the
audience.
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The Cost-Effective Method
An effective method will help in the proper growth of the profitability and lower the cost that are
associated with the product. There is always a need for cutting the cost so that the merchandise
are available at a cheaper price and is more cost effective. Dan and Donn are to promote the
home games in the most effective manner of cost in Canberra. The method that will be used for
the promotion of the game will be the use of promotional gifts to the audience, group of people
and individuals (Cameron and et al., 2016). This will improve the reputation and crate opinions
of positive nature. The method will use the media, which are electronic such as the social media
marketing, internet, radio and television to promote the game at home. The electronic factors are
the most cost effective method as it will add more sustainability. The social media and the
internet will be the used in a prominent manner for the promotion and gather more audience for
the game (Andrews and Shimp, 2017).
The Cost Associated With the Proposed Method
The cost that will be associated with the promotion of the home game is determined as the fixed
cost and this will be further added with the effective cost of the merchandise. The overall cost
will add more leverage to the merchandise and will be fixed irrespective of the change in the
variable cost. To be a profitable venture, the following determination has been made
prominently. The cost that will be fixed will be AUD 5,000 respectively for the three products
(Kipesha, 2016). A break-even analysis will be conducted based on the stated assumptions. The
assumptions are stated as followed:
 All the cost that is associated with the product can be divided into a variable and fixed
cost.
 The cost behaviour is linear in nature.
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 The price that is associated with the product is to be constant.
 The variable cost intends to change with the overall change in the output.
 There will be no change in technology and other factors.
 The volume of sales and the output are to be constant during the analysis and there will
be no factors for affecting the cost.
 The sales price of every unit will be constant with the variable and the fixed cost.
 The variable cost will be 60,000, 30000, 57000 respectively and the sale price will be $
30 for the apparels , $10 for flex hats, $ 25 for pro skates per unit for three products
The cost breakdown of three products are stated below:
Products
Costs Apparels for men and woman Flex Hats Pro Stakes
Fixed Cost AUD 5,000.00 AUD 5,000.00 AUD 5,000.00
Variable Cost AUD 60,000.00 AUD 30,000.00 AUD 57,000.00
Operating Cost AUD 4,000.00 AUD 6,000.00 AUD 7,000.00
Total Cost AUD 69,000.00 AUD 41,000.00 AUD 69,000.00
Profit AUD 81,000.00 AUD 9,000.00 AUD 56,000.00
Sale Price AUD 1,50,000.00 AUD 50,000.00 AUD 1,25,000.00
Table. 1: The Cost of Three Products and the Profit Determined
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Figure. 2: The cost
breakdown of the three products
(Source: Author)
The total number of units that are to be sold is 5,000 for three products and the sales of the
merchandise will reportedly contribute towards twenty-five per cent of the sales. The cost
volume profit analysis will help in the determination of the change on the net income and the
operating income in respect of the cost of the products (Abdullahi and et al., 2017).
The number of items that will be required for the sale at break even and earn a profit margin of
30 per cent will be:
Products
Costs Apparels for men and woman Flex Hats Pro Stakes
Fixed Cost AUD 5,000.00 AUD 5,000.00 AUD 5,000.00
Variable Cost Per Unit AUD 12.00 AUD 12.00 AUD 12.00
Revenue Per Unit AUD 30.00 AUD 30.00 AUD 30.00
Break Even Point (Units) 120.00 120.00 120.00
Table. 2: Breakeven Analysis
Thus, 120 units has to be sold respectively for the three products to attain the breakeven point.
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Fixed Cost Variable
Cost Operating
Cost Total Cost Profit Sale Price
AUD -
AUD 50,000.00
AUD 100,000.00
AUD 150,000.00
AUD 200,000.00
AUD 250,000.00
AUD 300,000.00
AUD 350,000.00
Cost Breakdown of three products
Apparels for men and woman Flex Hats
Pro Stakes

In order to profit margin of 30 per cent, 484 units are to be sold respectively.
Estimated fans in the game are determined to be 5,000 and the price that has been determined at
the breakeven is $ 5 and to earn a profit margin of 20 per cent they need to sell it at $ 6 per
poster.
The additional cost for one volunteer and a paid employee will add an additional $ 250 for the
shop. This will be considered as a variable expense and the company will have a new variable
cost per unit at $ 12.05. Thus, the breakeven will be 279 units and will need to sell 300 units to
earn a profit of 10 per cent respectively (Cortijo, 2018).
Risk Associated With the Recommendation
There are some issues with the recommendation and will add risk to Canberra Brave. Firstly, the
company already has a wide range of apparels and the competition in the market is huge with
multinational companies with cost products. The change in the price of the raw materials will
add pressure to the production unit and will impact the cost that is associated respectively. The
risk can be mitigated with a strong marketing team who will determine a possible change in the
market and improve the market share of the company. It has been determined that having a good
advertisement team will help them to improve product knowledge among the customer (Acharya,
Pagano and Volpin, 2016).
Affordability of the Product for the Customers
The product will be affordable to the customers in respect of the other products that are available
in the market. The products are of less cost and have high durability in comparison to the
competitor products. The variety in the products is large and the customer can choose from a
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wide range of it. The unique design and the quality will make the product an ideal choice for the
customers in the marketplace (Bocken and et al., 2016).
Alternatives for the Business Model
The Canberra Cavalry Ice hockey team will profitable for Dan and Donn. It will add more
viability for the company and achieve the goals that has been set respectively (Chaffey, Hemphill
and Edmundson-Bird, 2015). The company must adapt to the business model of ecommerce as it
will upgrade the overall business structure and help in better selling of the products in
comparison to the ideal shop. It will open up new potential market and increase the customer
base to make the business more successful (Laudon, and Traver, 2016).
Conclusion
To develop profitability, Dan and Donn are recommended to add products, which are layer top
for women and full sleeves for men. They will also sell pro skates and Flex hat will also be sold
as additional merchandise and the promotion of the home game will be done with effective cost
control, through social networking, internet and radio. The risk will be overcome by the
marketing team and proper advertisement of the merchandise. The product will be customer-
centric and will be affordable concerning the market.
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Reference
Abdullahi, S.R., Bello, S., Mukhtar, I.S. and Musa, M.H., 2017. Cost-Volume-Profit Analysis as
a Management Tool for Decision Making In Small Business Enterprise within Bayero
University, Kano. IOSR Journal of Business and Management (IOSR-JBM), 19(2), pp.40-45.
Acharya, V., Pagano, M. and Volpin, P., 2016. Seeking alpha: Excess risk taking and
competition for managerial talent. The Review of Financial Studies, 29(10), pp.2565-2599.
Andrews, J.C. and Shimp, T.A., 2017. Advertising, promotion, and other aspects of integrated
marketing communications. Nelson Education.
Bocken, N.M., De Pauw, I., Bakker, C. and van der Grinten, B., 2016. Product design and
business model strategies for a circular economy. Journal of Industrial and Production
Engineering, 33(5), pp.308-320.
Cameron, A.J., Charlton, E., Ngan, W.W. and Sacks, G., 2016. A systematic review of the
effectiveness of supermarket-based interventions involving product, promotion, or place on the
healthiness of consumer purchases. Current Nutrition Reports, 5(3), pp.129-138.
Chaffey, D., Hemphill, T. and Edmundson-Bird, D., 2015. Digital business and e-commerce
management. Pearson UK.
Cortijo, V., 2018. Using The Profit To Teach Students How To Make A Profit. Business
Education Innovation Journal, 10(2).
Kipesha, E.F., 2016. FINCARE LTD: Cost, Volume and Profit Analysis. Case Studies Journal
ISSN (2305-509X)–Volume, 5.
Laudon, K.C. and Traver, C.G., 2016. E-commerce: business, technology, society.
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Mordor Intelligence, 2019. Market Overview. Key Market Trends. [Online] available at:
https://www.mordorintelligence.com/industry-reports/ice-hockey-equipment-market [Accessed
On: 25th August, 2019]
Subic, A. ed., 2019. Materials in sports equipment. Woodhead Publishing.
Turcotte, R.A., Renaud, P. and Pearsall, D.J., 2016. Ice Hockey Skate, Stick Design and
Performance Measures. In The Engineering Approach to Winter Sports (pp. 311-326). Springer,
New York, NY.
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