Policy Options for Working Capital Management

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting

MANAGERIAL ACCOUNTING 2
Table of Contents
Discuss the usefulness of cost-profit-volume analysis from the company’s point of view..........................3
References...............................................................................................................................................8
Discuss the various policy options available for working capital management in the short versus long
term.............................................................................................................................................................9
References.................................................................................................................................................14
Discuss the statement “Managers should not focus on the current stock value because doing so will lead
to an overemphasis on short-term profits at the expense of long term profits. 232....................................15
References.............................................................................................................................................19
Discuss the purpose of having internal controls for budgeting purposes...................................................21
References.............................................................................................................................................27
Illustrate how the break-even looks like and describe the usefulness of Break-even analysis...................28
References.............................................................................................................................................31
Discuss some of the limitations of break-even charts................................................................................32
References.............................................................................................................................................34

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Discuss the usefulness of cost-profit-volume analysis from the company’s point of view.
Cost-volume-profit assessment is useful for evaluating how changes in cost and volume may
influence the operating income of the corporation and net income (Mohammaditabar,
Ghodsypour, &Hafezalkotob, 2016). In order to perform this assessment, several assumptions
were developed by a corporation:
 SP(per unit) is stable
 VC(per unit) are stable
 There isaconstant total fixed cost (TFC)
 Costs could be influenced because of activity transformation
 When a corporation sells over one product then itcould be traded in the same mix (Peter,
2016).
CVP analysis is essential that all cost of a corporation like manufacturing, selling as well as the
administrative cost can be identified as fixed as well as variable. Cost volume profit assessment
can help the corporation for addressing the breakeven point and it is a point in which profit may
become equal to zero. It can be accomplished by assessing the break-even volume and then
exercising it to develop graphical illustration (Zaharia, &Bordeianu, 2018).
The volume of break-even can either be illustrated in dollars and in a unit. It relies on nature and
type of corporation. For illustration, while a corporation produces a larger volume of the product
then it can prefer for evaluating the breakeven volume in terms of sales dollar whereas, in
context of one Product Company, the unit tool could be a moresignificant calculation in context
of sales volume (Palacio, Adenso‐Díaz, & Lozano,2018). The calculation tool, as well as the
graphical illustration in both terms, would be as follow:
 Break-even volume in sales dollar technique = Fixed costs/Contribution margin ratio

MANAGERIAL ACCOUNTING 4
 Break-even volume in unit technique = Fixed costs/Unit contribution margin
The profits of a corporation may become zero and below at breakeven point as well as, a
company can begin to incur the losses. Hence, it is a significant technique for the company that
supports them to assess what should be a target and how it could be attained by organizing the
fixed and variable cost by developing the plan for operations in upcoming times (Hughes, 2016).
Benefits of Cost Volume Profit Analysis
The company could analyze its benefits, prices,and expenses with the help of CVP (Cost volume
profit). Accountant of the organization could make an effective decision related to future
operations by using the cost volume profit tool (Sen, Ozturk, &Vayvay, 2016).
Operating Leverage
The organization could get another benefit that is operating leverage benefit, by utilizing cost
volume profit (CVP) approach. Operating leverage would give details about the organizational
cost structure which is developed from a fixed cost process. This profit is played an essential role

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for the company because the cost structure is related to the company’s benefit and development
phase of the firm (Klochko, Rybyantseva, &Oksanich,2016).
Each organization has its own operating leverage approach due to differentiatingits position from
the competitors in the market place. Operating leverage of the company would be good when
their fixed cost would be high from variable cost and it contributes to increasing the margins of
product. Besides this, a higher breakeven point of organization would support to increase the
fixed sale of the company. The financial success of an organization totally depends upon a higher
breakeven point as it would assist the company to get more profits (Potkány, &Krajčírová,
2017).
Future Forecasting
Through the above-mentioned approaches, models, and graphs, a manager can assess the way
where the company can move and this assessment would support to better comprehend the
different activities as well as an operation within the company. By getting earlier understanding
regarding profits and costs, companies can them in a more effective wayof gaining productivity
(Yao, &Xu, 2018).
Price Determination
It is another advantage of practicing this approach. For instance, when any market player within
the dental industry has developed the price at 50, 000 for single dental operation as well as
business cannot offer this operation at any expenses lower than 20000 then company can practice
cost profit volume assessment for comparing the price of competitor with variable and fixed
costs of its operations and therefore it can manage the price of company (Venegas, & Ventura,
2018).
Profit Planning

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The objective of any business is to generate the value for consumers and to obtain the profits for
the corporation. But, managing all costs and operation is such a way that can increase profit is
not an easy task. Hence, an organization has to consider different things for engaging in adequate
profit planning tools. The CVP assessment can support the corporations for developing the best
and most profitable integration related to sales volume, cost,and price. Hence, it can support the
manager for estimated and calculated their profit at a different level as well as, for different
products range (Mohammaditabar, Ghodsypour, &Hafezalkotob, 2016).
Risk Assessment
The business world is transforming and because of several internal and external threats related to
any industry, businesses should face too many uncertainties. Although, the measurement of risk
and return through measuring the constant (beta) is a technique in finance however, managerial
accounting is also concerned about this. Managing uncertainty is too effective for business as it
may tend to define all the process as well as practices entailed within the company. Hence, CVP
is a technique that helps for measuring the risk specifically with respect to cost and volumes.
After assessing this uncertainty, companies can get a better solution for declining this risk (Peter,
2016).
Decision Making
All of the above-stated benefits regarding cost volume profit assessment are directly and
indirectly associated with the decision procedure for the company. Any business company
should develop the decision about price, products, their cost as well as fixed and variable unit
expenses. The CVP approach may simplify the process by offering the corporation with a
breakeven point as well as by helping them for engaging in effective decision-making as well as
planning for future (Zaharia, &Bordeianu, 2018).

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Operating Leverage
Another advantageous that a company can gain by practicing the CVP approach is operating
leverage advantageous which describes how the structuring of cost within an organization is
made up related to fixed cost procedure. There is huge advantageous as cost structure may be
directly associated with the level of profit and growth related to the company (Palacio, Adenso‐
Díaz, & Lozano, 2018).
Contribution margin and contribution margin ratio
Major calculation while considering CVP assessment is contribution as well as contribution
margin ration. The contribution margin demonstrates amount of income and profits of company
before withholding its FC. In another way, it is sales dollars amount that are presentedto cover
the fixed expenses. While measured as the ratio, companies can demonstrate the percent of sales
dollars that areavailable for covering the fixed expenses. After covering the fixed expenses, the
next dollar of sales outcomes will create income (Hughes, 2016).
It is also related to revenues deducting from variable expenses. Contribution margin could be
measured through per unit as well as dollar basis. When a company has revenue of $750,000 as
well as TVC is $450,000 then, contribution margin for this company would be $300,000. It is
assumed that a company can sell 250,000 units at the time of year; per unit sales price is $3, as
well as $1.80 will obtain as a TVC per unit. Furthermore, $1.20 will be obtained as contribution
margin per unit and, 40% will be contribution margin ratio. CVP is calculated through
contribution margin in dollars and per unit. For assessing ratio related to margin ofcontribution,
it is divided by revenue and sales volume (Sen, Ozturk, &Vayvay, 2016).

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References
Hughes, M. (2016). Matrix Accounting Illustrated: Contribution Margin. Journal of Corporate
Accounting & Finance, 27(5), 59-65.
Klochko, E. N., Rybyantseva, M. S., &Oksanich, E. A. (2016). Development of Controlling in
Postindustrial Economy: Tools and Techniques. International Journal of Economics and
Financial Issues, 6(1S), 33-40.
Mohammaditabar, D., Ghodsypour, S. H., &Hafezalkotob, A. (2016). A game theoretic analysis
in capacity-constrained supplier-selection and cooperation by considering the total supply
chain inventory costs. International Journal of Production Economics, 181, 87-97.
Palacio, A., Adenso‐Díaz, B., & Lozano, S. (2018). Analyzing the factors that influence the
Pareto frontier of a bi‐objective supply chain design problem. International Transactions
in Operational Research, 25(6), 1717-1738.
Peter, S. (2016). Cost analysis of electronic systems (Vol. 4). World Scientific.
Potkány, M., &Krajčírová, L. (2017).Cost Reporting of the Transport Company and its Use in
Decision-making. Procedia engineering, 192, 731-736.
Sen, D., Ozturk, M., &Vayvay, O. (2016).An overview of big data for growth in
SMEs. Procedia-Social and Behavioral Sciences, 235, 159-167.