Hello help me add a response to this post with citations and references.

Hello All,

For organizations to stay competitive within their given fields and ensure that they are taking the correct steps in doing so they must analyze their Cost-Volume-Profit (CVP). CVP helps managers of organizations to make decisions on the products and services they produce, prices, marketing strategies, and what price structure to maintain. CVP estimates how profits are affected in five distinct ways: selling price, sales volume, unit variable costs, total fixed costs, and mix of products sold (Noreen, Brewer, Garrison, 2023). Understanding and knowing what CVP does aids managers and business owners in determining the volume and price structure of a product or service they produce that will generate the amount of profit they desire. By doing so they will be able to determine the break-even point to cover the cost of production and how many more units need to be produced to achieve their maximum profit level (Machuga, Smith, 2013).

Like all financial models, CVP, is based on a set of simplifying assumptions that reduce the complexity of input and output variables to make the decision-making process more manageable (Said, 2016). Managers will typically adopt three assumptions; selling price is constant, costs are linear and can be accurately divided into variable and fixed components, and in multiproduct companies, the mix of products sold remains constant. Assuming that the selling price stays constant, the price of the product or service will not change as volume changes. When we assume that costs are linear and can be accurately divided into variable and fixed components, we can also assume that the variable costs are constant per unit and the fixed costs are constant in total over the entire relevant range. When assessing a multiple product company, it is assumed that the mix of products sold remains constant no matter the volume of sales (Noreen, Brewer, Garrison, 2023).

An example that I found that pertains to CVP, is an article by the Global Journal of Business Pedagogy. The article discusses Netflix's decision to continue airing the hit TV show Friend's based on customer demand. The original contract Netflix had to air the show cost them $70 million a year and the new price to air the show would add an additional $30 million, making a yearly total of $100 million. Incurring such a step cost for just one show had Netflix's managing staff scratching their head and asking themselves if it was worth $100 million for just one show, so they put out surveys and advise their customer base of the potential cancellation of the show Friends. As of 2019, Netflix had 52.5 million customers in the U.S. and 30% of those customers said that if they could not watch Friends, they would more than likely cancel their subscription (Crews, Colson, Elson, 2020). At the time a Netflix subscription averaged $8.99 and taking into consideration that 15.75 million people would not be paying the subscription fee, which equates to $141.5 million in sales, the company stood to lose $41.5 million if they did not continue airing Friends. Under the assumptions of CVP one can see that Netflix's choice to continue airing the hit TV show Friends was a profitable one. The cost of the subscription stayed constant but the volume had the potential to decrease which directly affected the profits in the same way. This example directly shows that the cost, variable inputs, and fixed costs are linear.

References

Noreen, E.W., Brewer, P.C. & Garrison, R.H. (2023). Managerial Accounting for Managers.6^thedition.McGraw Hill LLC.

Machuga, S., & Smith, C. (2013). A Case Method Approach of Teaching How Cost-Volume-Profit Analysis is Connected to the Flexible Budgeting Process and Variance Analysis.Journal of Accounting and Finance,13(6), 178-192. https://0634eta99-mp01-y-https-www-proquest-com.prx-keiser.lirn.net/scholarly-journals/case-method-approach-teaching-how-cost-volume/docview/1502619176/se-2

Said, H. A. (2016). USING DIFFERENT PROBABILITY DISTRIBUTIONS FOR MANAGERIAL ACCOUNTING TECHNIQUE: THE COST-VOLUME-PROFIT ANALYSIS.Journal of Business and Accounting,9(1), 3-24. https://0634eta99-mp01-y-https-www-proquest-com.prx-keiser.lirn.net/scholarly-journals/using-different-probability-distributions/docview/1862668142/se-2

Crews, C. O., Colson, C. J., & Elson, R. J. (2020). It Does Matter Who Your Friends Are: A Case Study of Netflix and "Friends" Licensing.Global Journal of Business Pedagogy (GJBP),4(1), 6-13. https://0630staej-mp01-y-https-web-p-ebscohost-com.prx-keiser.lirn.net/ehost/pdfviewer/pdfviewer?vid=12&sid=3aca3acf-f6e4-41fa-82c2-ca291b77a833%40redis