Comment in Discussion
Despite being based on many assumptions that seem inapplicable in the real corporate world, the CVP framework is a meaningful model identifying the magnitude of the economic trouble a company is facing. It is important noting that CVP has a wide range of applications, including helping managers to determine the break-even point in their business. On this note, managers employ break-even point as the fundamental activity level at which total cost significantly contributes to the overall sales revenue. Based on that, total revenues are only obtained by multiplying the quantity sold by the unit selling price. This profound knowledge is found to be essential in evaluating every organizational business risk.
On the other hand, the CVP framework can allow management to determine the required solution. The CVP framework helps in providing the answers to questions about the consequences of different courses of action. For instance, managers may want to ascertain how many sales a business needs to make to attain a target profit. That is one of the most essential decisions that managers need to make before starting a business, and it simply means ascertaining the break-even point of a business. By answering the question, it means CVP is actually helping management to determine the required solution.
Reference List
McLaney, E., and Atrill, P., 2016. Accounting and finance an introduction. Pearson Education Limited.
Cockcroft, S., and Russell, M., 2018. Ample data opportunities for accounting and finance practice and research. Australian Accounting Review, 28(3), pp.323-333.