profit-loss account 39

May 13th, 2015
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profit and loss statement describe PROFIT PLANNING

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CHAPTER 2PROFIT PLANNING2-1 Assumptions and Misconceptions about CVP Analysis General Note to the Instructor: This question can prove difficult because it requires not only considerable understanding of the concepts introduced in Chapter 2 but also some anticipation of concepts introduced in Chapter 3. The purposes of the questions are to stimulate discussion of the uses and limitations of CVP analysis and to counter the natural student skepticism regarding the applicability of basic concepts in light of the factors that make it impossible to portray the practicalities of business operations in the simple forms offered by theoretical analysis. The points to be made are that, the uncertainties of the real world notwithstanding, managers must plan and take actions and that any actions managers take implicitly reflect some assumptions about the future. For example, a store owner must set some prices, and the action of setting a price reflects some expectations about volume and costs. Similarly, a manager must decide not only whether or not to advertise but also, if some advertising is to be done, how much is reasonable. A manager must also decide how many employees to have as well as a host of other matters. CVP analysis, though far from a cure-all, provides a reasonable basis for planning.1. CVP analysis answers "what if" and "what must we do to achieve" questions. It is a planning tool and helps managers see what should occur given certai

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