Learning Team Reflection Edwin Fields, Gette Duropan, Vienice Styles, Manu Mafi

Learning Team Reflection

Edwin Fields, Gette Duropan, Vienice Styles, Manu Mafi

ACC 561

March 30, 2015

Sheri Wang

Learning Team Reflection

In the first years of operation, businesses do not generate revenue.  Loans from lenders and investors, as well as funds out of pockets, are commonly used as the start-up cost for new ventures.  The beginning of a business has not established customer based and cannot be profitable until their reputation has been made.  Nonetheless, it is the goal of a new business owner to sell an adequate amount of goods to generate revenue to offset expenses. Most new business owners do understand that new beginnings cannot be chosen on instinct alone but rather both instinct and analysis.        

The Cost Volume Profit, otherwise known as the CVP is often relied upon when conducting an analysis. The CVP analysis is a tool designed for business owners.  Business owners can use the CVP to reduce their risk within the business.  CVP is the study of effects of changes in cost and volume on the businesses profits.  It is essential that CVP be used in the business for profit planning.  CVP is critical for management decisions for the cost of goods, determining product mix, and maximizing production facilities.

The CVP analysis, also known as the “break-even” analysis, is an important managerial tool.  As the term “break-even” signifies, companies attempt to identify the point in sales (dollars or units) where profit is at zero, neither a loss nor a gain.  As most financial experts will agree, corporations are in business to make money.  An organization that has the knowledge of its break-even points can accurately project financial goals and plans.  This knowledge provides concrete figures in terms of dollar amount and quantities sold that a company must attain to be profitable.  Companies can achieve these statistics by using the appropriate formula.  For example, to calculate the break-even point in units, the financial analyst must divide the fixed cost by the unit contribution margin, or to calculate the break-even point in dollars, he or she must divide the fixed cost by the contribution margin ratio (Kimmel, Waygandt,  & Kieso, 2011).