Assignment 1: Cost-Volume-Profit Analysis

Think about a company that is about to launch a new product. What are some of the key factors it must address to account for how the market will respond to its product? How can it adjust and learn after the product is launched so that it can be more successful in the future?

Accounting for the unpredictability of the market is a crucial skill for managers, and cost-volume-profit analysis allows for some insight into that unpredictability. Factoring in the impact of cost is crucial for managers to understand how to make the best decisions. When managers make decisions, they have to consider the potential financial and business outcomes based on the different types of costs, such as opportunity cost, fixed cost, marginal cost, and average cost.

To prepare for this Assignment, examine cost concepts as a decision-making tool for managers.

In a3- to 4-page paper, address the following:

• Describe the use of cost-volume-profit analysis in decision making, including how it helps managers cope with uncertainty.
• Explain how the contribution margin changes as output levels vary due to moving variable and fixed costs.
• Compare and contrast gross margin and contribution margin.
• Explain the uses of gross and contribution margins, including why a company would need to account for both.