Cost Volume Profit Analysis
The concept of the cost volume profit (CVP) analysis is mainly used by the companies to determine costs and the sales volume. The analysis is vital in understanding the company’s profitability. However, the approach has been branded to be simplistic and not realistic since it is based on the following assumptions such as Sales price per unit being constant, total fixed costs are constant, Variable costs per unit are important, Everything produced is being sold and that If accompany sells one product they are being sold in the same mix. However the assumptions are not accurate since changes occur in the units sold, selling price, variable cost per unit and the total costs. The fallacy of CVP analysis is that prices in any business environment cannot be constant since they are affected by macro-economic factors. Besides all costs cannot be considered to be fixed and variable costs and that there are other factors that impact on the prices and costs.
In job costing the needs of the customers are specific to the kind of activity hence each customer will be assigned costs according to the level of activity. And the advertising agency targets specific demographics with specific needs and therefore the service or the product that is sold is specific. While in process costing the costs are assigned to the mass quantity of the service or the products. The nature of the banking services that is provided to each customer is the same. Hence the costing is done by comparing the total costs and the number of customers served by the bank since the services are similar.
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Reference List:
BLOCHER, E. (2016). Cost management: A strategic emphasis.
DRURY, C. (2015). Management and cost accounting (9th Ed.). Cengage Learning.
HORNGREN, C., SUNDEN, G., STRATTON, W., BURGSTALHER, D. and SCHATZBERG, J. (2013) Introduction to Management Accounting. Global Ed. Harlow: Pearson.
SEAL, W. et al (2014) Management Accounting. 5th Ed. Maidenhead: McGraw-Hill.
