Cost Volume Profit Analysis the Term Paper

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CVP is very useful for small business also because the analysis takes
into consideration variables like Return on Investment, or Customer
Acquisition Cost. This analysis allows the company to determine what the
maximum profit volume can be, and how the above mentioned variables can be
changed in order to become successful.
CVP analysis is also able to determine the results of media campaigns,
especially for small business, where results are more visible and can be
observed after a shorter period of time. Furthermore, these results can be
translated into a successful company strategy, given the fact that the
strategy would be based on verified results. In relation to this, market
share can increase due to such a strategy.
For small business, CVP analysis is also used in establishing the
company's budget for certain activities. The analysis is able to provide a
flexible budget variant, which is exactly what a small company needs, given
the fact that environmental changes affect small companies more than they
affect larger companies.

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Such changes are quite difficult to be
counteracted by a small company without a flexible budget.
However, the CVP analysis has its disadvantages. According to
critiques, the analysis uses simplifying assumptions, like deterministic
and linear cost and revenue functions (Kee, 2007). Also, this method only
concentrates on one product at a time, and on one period at a time. All in
all, several surveys have revealed that the CVP analysis is one of the most
widely used methods in management accounting.

Reference list:
1. Cost Volume Profit Analysis (2008). Business Owner's Toolkit.
Retrieved May 14, 2008 from
http://www.toolkit.com/smallbusinessguide/sbg.aspx?nid=P0675
00.
2. CVP Analysis (2008). Wikipedia, the free encyclopedia.
Retrieved May 14, 2008 from
http://en.wikipedia.org/wiki/CVPanalysis.
3. Kee, Robert (2007). Cost volume profit analysis incorporating
the cost of capital. Journal of Managerial Issues. Retrieved
May, 14, 2008 from
http://www.entrepreneur.com/tradejournals/article/173229705.htm
l......

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