CVP Discussion Analysis 2022

CVP DISCUSSION
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Reply to Post 1
Am, I agree with the various limitations of CVP analysis which have been indicated by you.
These are primarily derived on account of the unrealistic assumptions. However, despite
these shortcomings I would like to indicate that CVP analysis is a useful tool. This is because
it is quite simple to implement and provides a rough estimation of the target units that the
given organisation would have to sell so as to meet a particular target. Suitable adjustments in
this technique can be made based on the actual behaviour of various costs using various
technological aids (Heisinger,2014).
Also, while the utility of CVP analysis as a standalone tool for analysis may be limited, it can
always be used in association with other quantitative measures and analysis techniques.
Further, in small business where the operations are simple, CVP analysis has significant role
especially if there is one particular product or service which is provided (Petty et. al., 2016).
Further, this analysis is also capable of providing an estimate of the sales volume which must
be achieved to attain the underlying target based on the assumptions such as nature of fixed
costs and variable costs along with product mix (McLaney & Atrill,2014).
References
Heisinger, K.(2014) Essentials of Managerial Accounting 4th ed. London: Cengage Learning.
McLaney, E. and Atrill, P. (2014) Accounting and Finance: An Introduction, 7th ed. Harlow:
Pearson Education Limited
Petty, J.W., Titman, S., Keown, A.J., Martin, P., Martin J.D. and Burrow, M.(2016),
Financial Management: Principles and Applications 6th ed. Sydney: Pearson Australia
Reply to Post 2
As you indicated Ran, despite the shortcomings CVP analysis is extensively used in various
business scenarios for decision making by the management. It is not used hy the external
users since they do not have to make decisions about the product costing and pricing. This

has to be carried out by internal users such as managers who tend to rely on CVP analysis
along with other tools so to determine the target sales which the underlying company would
need to be accomplished (Heisinger, 2014). Further, it is noteworthy that CVP analysis as a
model does not some flaws and it is precisely these flaws which lead to it being quite simple
and easy to use. This is one of the major reasons for the vast usage of this model (McLaney,
and Atrill, 2014).
Further, this serves as a useful tool for a base case projection. It is always possible to tweak
the CVP analysis based on the varying assumptions that do not hold true. Also, there are
technological aids which can provide assistance in this regards. The utility of CVP model
should be apparent from the fact that despite its shortcomings it is still being extensively used
by firms for a rough estimation of the target without considering the actual complexities of
the business (Bhimani et. al., 2016).
References
Bhimani, A., Horngren, C.T., Datar, S.M. and Foster, G.(2016), Management and Cost
Accounting, 4th ed. Harlow: Prentice Hall/Financial Times
Heisinger, K.(2014) Essentials of Managerial Accounting 4th ed. London: Cengage Learning.
McLaney, E. & Atrill, P. (2014) Accounting and Finance: An Introduction, 7th ed. Harlow:
Pearson Education Limited
Reply to Post 3
Moha, I am in complete agreement with the caution that managers need to exhibit when using
CVP analysis on account of the shortcomings and weaknesses involved. In this regards, it is
noteworthy that CVP analysis can be used properly only when the managers understand the
various weaknesses. This is because this will not allow the managers to become over reliant
on the results obtained through CVP. Instead, the CVP analysis would serve as the starting