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Cost Volume Profit Analysis and Organizational Development

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When conducting a CVP analysis how it can be helpful in organizational development? How does this tool help you determine pricing and R&D budgets? Consider the concepts of Market Saturation, price elasticity and price-demand relationships.

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In answering this question, one of the first things you want to look at is the definition of CVP analysis. Also, you need to examine the uses or purposes of CVP analysis. After looking at the definition of CVP analysis and its purposes then you will be better able to tell how it can be helpful to organizational development. You know that organizational development by itself is the process of improving organizations. This process is carefully planned and implemented to increase an ...

Solution Summary

This solution gives a detail account of how Cost Volume Profit (CVP) Analysis can be helpful in organizational development. An explanation is first given as to what CVP Analysis is and what are its purposes; then information is provided as to how CVP Analysis becomes useful when determining pricing and preparing budgets. Reference is also made in this solution to market saturation and price elasticity, and how or whether CVP Analysis is relevant under each. Links are also given in this solution for further reading.

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Developing a Revised Strategy

It's New Year's Day, 2016. You just had a great New Year's Eve celebration; you finished analyzing the performance of Tablet Development and are ready to charge ahead into the future. As you turn on the TV and try to open your eyes, you notice something strange (again). The TV commentator is saying something about New Year's Day, 2012. You have a sinking feeling, and sure enough, it's back to 1/1/2012. You realize that you are in Time Warp 2.

This time you decide to do your decision making differently. You are going to use a technique that you became familiar with last year, CVP analysis. And you are going to decide all of your decisions at once. No feeling your way through it this time. You are going to make all of your decisions now, for the next four years and just cruise through it this time.

You analyze the results of your first set of decisions that you made in Time Warp 1, from 2012 to 2015. You have the data, you kept it all. But now you are going to use CVP analysis to help you determine your new strategy. And you have a tool to use, the CVP Calculator.

You analyze the results using CVP and develop your complete four year strategy. You decide to make notes about your analysis and your reasoning process; just in case you have to do this again (You are praying that you can finally move ahead this time when you get to 2016.)

You finish your report that shows your strategy that you are going to use these next four years during Time Warp 2. And stop and take a big breath before you move ahead into 2012.

(In other words, don't run the simulation, yet. Just turn in this report.)

After again reviewing and analyzing the results that you got in SLP2 (Time Warp 1 decisions), you develop a revised strategy and make a case for this new strategy using analysis and relevant theories.

The revised strategy consists of the Prices, R&D Allocation %, and any product discontinuations for the X5, X6, and X7 PDAs for each of the four years: 2012, 2013, 2014, and 2015.

You must present a rational justification for this strategy. In other words, you must Make a Case for your proposed strategy using financial analysis and relevant theories.

Use the CVP Calculator and review the PowerPoint that explains CVP and provides some examples.

You need to CRUNCH some numbers (CVP Analysis) to help you determine your prices and R&D allocations.

Make sure your proposed changes in strategy are firmly based in this analysis of financial and market data and sound business principles.

Present your analysis professionally making strategic use of tables, charts and graphs.

TIME LINE SUMMARY
SLP1

2015: 12/15 hired. 12/30 turned in first report to Sally a few days early. 12/31 - celebrated
SLP2

Time Warp 1 begins: 1/1/2016 WARPS INTO 1/1/2012
You freak out, and then realize you have to make decisions for 2012 - 2015, which you do.
12/31/2015 - you have gone through all four years, and you write your report to summarize how you did. You are hoping that you will wake up tomorrow and it will be 2016.
SLP3

Time Warp 2 begins: 1/1/2016 WARPS INTO 1/1/2012 (Again)
Now its 1/1/2012: you decide to use CVP analysis and develop a four year plan for your strategy. You analyze the results of your first decisions in Time Warp 1 and make notes. You use the CVP Calculator to help you develop your strategy and you make more notes explaining your logic and your analysis. Then you take a short breather before you start in again tomorrow.

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