How can CVP analysis be used to predict future costs and profitability? Describe how CVP analysis is used, or could be used, at your current place of employment
Topic 2 DQ 1
How can CVP analysis be used to predict future costs and profitability? Describe how CVP analysis is used, or could be used, at your current place of employment. If you have not worked for a company that might use CVP analysis, you may choose a well-known company and describe how you envision that company using CVP analysis. Try to discuss a concept associated with CVP not already addressed by your classmates. Consider using an article to summarize or apply the CVP concepts. To participate in follow-up discussion, choose one of the topics/concepts that a classmate has posted and provide your own reaction to it, adding to what they posted or providing a professional disagreement to their posting.
Please include proper citations in your discussion post. Points will be deducted if proper citations are not used.
Expert Answer and Explanation
CVP analysis can be used to predict future costs and profitability by evaluating how changes in costs and volume of production affect the bottom line. The calculation of CVP relies on core components such as variable costs, fixed costs, sales price per unit, and the contribution margin. One of the organizations that have incorporated CVP as part of its analysis and presentation is Starbucks Corporation. The coffee chain could apply CVP in multiple ways to boost its financial performance. Firstly, CVP is useful in evaluating new product pricing (Migdadi et al., 2022).
Starbucks will use the model to calculate the costs of production, the adequate volume that would meet the existing demands, and the contribution margin of the new product. Besides, Starbucks could use the model to establish the performance of each outlet. The company should evaluate the profitability of each outlet, as well as production costs and volume. Further, the model could be helpful in the decision-making of the prices of each product. The management will use the tool to establish how the cost and the volume of products have an impact on its profits. Moreover, Starbucks could use CVP for its strategic expansion plans.
The model would help evaluate the correct volume and costs needed to realize specific profitability. The management will make an informed decision based on the evaluation of the cost, volume, and profit of the new product. The linearity principle is the unique assumption of the CVP that will help explain the relationship between costs, sales volume, and revenue (Zahirović et al., 2024). The linearity will simplify the calculation of these components.
References
Migdadi, Y. K., Khalifa, A. A., Al-Swidi, A., Amhamed, A. I., & El-Naas, M. H. (2022). A conceptual framework of customer value proposition of CCU-formic acid product. Sustainability, 14(24), 16351. https://doi.org/10.3390/su142416351
Zahirović, S., Okičić, J., & Gadžo, A. (2024). Generalization of linear models for multiproduct break-even analysis with constant ratios. Eurasian Journal of Business and Management, 12(1), 1–14. https://eurasianpublications.com/wp-content/uploads/2024/07/EJBM-12.1.1.pdf
Topic 2 DQ 2
Review Cases 2.29 and 2.30 in your textbook. Respond to the questions in 2.30, supported by data that you calculate for 2.29. Discuss how a company’s policy can encourage or prevent employees from engaging in unethical behavior in order to meet quotas.
To participate in follow up discussion, ask questions and post comments regarding classmates’ posts, or respond to follow-up questions posted by the instructor.
Please include proper citations in your discussion post. Points will be deducted if proper citations are not used.
Expert Answer and Explanation
2.9. Estimated advertisement costs
Banner Ad development costs $ 7,200
Estimated impressions = 1,000,000/1000*1.50= 1,500
Click through costs= 1%*1,000,000*0.6= 6,000
Total costs= 7,200+1,500+6,000= 14,700
a) Although Sami’s suggestion likely boosted the number of clicks on Bohlander’s website, it was unethical. This assertion is because customers likely relied on the number of clicks to establish their relationship with the brand. Though the outcome could be positive, the actions of the efforts were unethical.
b) My answer in part (a) could change when friends and family made purchases. This assertion is because Sami could have converted friends and family to be among the customers. The purpose of clicking through is to attract customers to sample offers provided. Being part of the sales is encouraging.
c) Sami’s actions would likely boost revenues and create brand awareness.
Organizational Policies
The company’s policies are responsible for human resources behaviors. These policies are responsible for encouraging or addressing unethical behaviors. Applying aggressive quotas without adequate support is responsible for unethical behaviors in companies. Employees under immense performance pressure are likely to engage in unethical behaviors such as falsifying records to get accolades. The Wells Fargo accounts opening scandal is a good example of damaging organizational quota policies (Mullen et al., 2023). The other contributor is the lack of ethical oversight.
Employees may prioritize results over compliance when policies fail to emphasize ethical standards. The policy pushes employees to ignore policies that would encourage moral behavior. The other practice is incentives that reward outcomes alone. Policies that reward employees solely for reaching targets without evaluating the steps used to attain the new height encourage risk-taking and unethical conduct.
Conversely, favorable policies that boost ethical behaviors include setting clear codes of conduct that align with company values and providing training on ethical decision-making. Engaging in annual ethical training helps increase employees’ confidence to undertake their tasks ethically. Besides, engaging in transparency reporting is a reasonable effort to boost ethical practices (Efunniyi et al., 2024). Protecting whistleblowers is a good example of good organizational ethical actions. Rewarding employees who attain ethical standards is another way to encourage these good deeds.
The technique encourages a culture where ethical behavior is upheld and celebrated. Engagement in actions such as quarterly awards will push the rest of the workers to adopt this culture, where ethical behavior is upheld. Moreover, organizations could use role modeling to achieve the desired ethical practices. Using leaders as ethical role models will likely attract junior staff to behave similarly. Workers are unlikely to engage in unethical behaviors, especially when leaders exhibit good deeds. These examples indicate how organizational policies could encourage or discourage good deeds.
References
Efunniyi, C. P., Abhulimen, A. O., Obiki-Osafiele, A. N., Osundare, O. S., Agu, E. E., & Adeniran, I. A. (2024). Strengthening corporate governance and financial compliance: Enhancing accountability and transparency. Finance & Accounting Research Journal, 6(8), 1597-1616. https://www.researchgate.net/profile/Angela-Abhulimen/publication/383860258_1597-1616_4_Nigeria_Inter-bank_Settlement_System_Plc_NIBSS_5_Zenith_General_Insurance_Company_Limited_Nigeria_6_International_Association_of_Computer_Analysts_and_Researchers/links/66ddaa822390e50b2c769a8e/1597-1616-4-Nigeria-Inter-bank-Settlement-System-Plc-NIBSS-5-Zenith-General-Insurance-Company-Limited-Nigeria-6-International-Association-of-Computer-Analysts-and-Researchers.pdf
Mullen, D. M., Wheatley, K., & Lamb, N. (2023). Bad apples or poisonous tree? Corporate culture’s role in the Wells Fargo scandal. The CASE Journal, 19(6), 878-895. https://doi.org/10.1108/tcj-01-2022-0002/full/html
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