Answer these questions: Chapter 19 1) How does the preparation of a contribution

Question

Answer these questions:

Chapter 19

1) How does the preparation of a contribution margin income statement enhance cost behavior understanding and comparisons?

2) How does cost-volume profit (CVP) analysis in the management process reinforce the concepts of comparability and understandability to better business profitability?

Chapter 23

1) How do managers use the concept of cost benefit for short-run decisions during the planning phase of the management process?

2) How do managers use the concept of cost-benefit for the short-run decisions during the evaluating phase of the management process?

Chapter 24

1) How do managers use the concept of cost-benefit for capital budgeting decisions during the planning phase of the management process?

2) How do managers use the concept of cost-benefit for capital budgeting during the performing phase of the management process?

Explanation / Answer

chapter 19

1.

the contribution margin income statement gives a clear picture as to what are the cost which are directly assosiated with the production that can be avoided or the cost which will be incurred irrespective of production.

so it helps ;the management take decision whether the relevant cost of any goods is contributing towards the profit or not as the fixed cost does not have any effect on decision making due to they being Sunk cost.

2.

the CVP analysis helps the management to understand what % of the sale price is the variable cost and what % is contribution.

CVP analysis also help ascetain accurtely the breakeven point of production so that the production and sale can be properly planned.

So, CVP analysis make the cost of goods comparable as to their actual profitability for the company and the time a particular product would take to become profitable.

chapter 24

1.

capital budgeting is a decision making tools were it is seen how to use to the best use of availbale resourses and in how much time the capital applied will be earned back from the business.

so, the cost benefit analysis helps the manager to assess the cost and the related benefits from a particular goods. manager are able to check the contribution of a particular product towards profit. So, that manager can apply the capital on those resources which are more beneficial to the entity.

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