Financial Management. hgtyvxahx

Financial Management

Answer 3d)
Keeping the other factors constant, the increase in the sales price would lead to the decrease
in the number of the breakeven units (Rὂhrich, 2014). The reason for the same is that the
increase in the sale price of the goods would lead to the increase in the contribution margin
per unit. With the higher amount of the contribution margin per unit in the denominator, the
breakeven number of units would lower. Thus, this means the entity would reach the
breakeven point sooner or at lesser units with the increase in the selling price.
Total Word Count: 96
Answer 3e)
The technique of the cost profit volume analysis is useful for short-term decision making.
This is because there is variation in the short-term period, depending on the current
production capacity of a company and the time required for changing the capacity. However,
in the long run period, it is likely that all the cost behaviour patterns would change (Bierman
and Smidt, 2012). Some of the issues that may arise in the cost volume profit analysis are
elaborated as follows.
 CVP analysis aids the managers in making the projections for the future depending
upon the variable costs. The issues can arise in the companies who do not maintain précised
and detail-oriented records. This means, that the projections that are based on the cost
estimates and not on the actual data can lead to the inaccurate results.
 The Cost Profit Volume analysis can be challenging in the entities with the multi-
product operation, where there are present many variable cost ratios. Thus, when the said
analysis would be required to be performed for each single product category, it would not
only be tedious but also a complex task for the managers.
 The CVP analysis is based on a range of assumptions. One of the assumptions is that
the fixed cost is likely to remain constant irrespective of the changes in the level of output.
This is however not possible in the real life scenario.
 The yet another issues that can arise in the CVP analysis is in the division of the total
costs into the fixed and variable components. The said exercise would be specially difficult in
the case of the entities having multiple product ranges.
Total Word Count: 270