Managerial Accounting case study ( Textile )

Topics: Contribution margin, Management accounting, Cost-Volume-Profit Analysis Pages: 4 (1248 words) Published: August 10, 2014
2-1 Cost Behavior, benefits and difficulties ahead3
2-2 Using CVP as a mean for Prediction4
3- Conclusion6
4- Reference6

A good understanding of the relationship between cost and activities in a company is necessary for managers in every type of organization and this clothing manufacturing company is concerned because they do not have this understanding and what benefits it has for guiding managers to understand the changes and effects different future business decisions and alteration of those decisions have on the expenses and profit but. Although there are benefits to finding and fully understanding these relations there might be problems on the way which will be discussed further on. After reaching an understanding about the relationship between costs and business activities and analyzing cost behaviors, we could then use those information for predicting future profit changes due to changes in volume of activity, costs and prices of products. What effects can this manufacturing company expect on their profit if they add a new production line or they alter the machines and variable expenses change? All these questions are addresses using managerial accounting technique called cost volume profit.

2-1 Cost Behavior, benefits and difficulties ahead
Change in organizations activity like designing or producing new type of clothing can affect costs of this manufacturing company. The relationship between costs and activity is called cost behavior or cost function. Providing knowledge of cost behavior helps the managers to make more accurate cost predictions. Which ultimately serves as a tool for managers in this organization for planning, controlling and decision making. Which needs the prediction of costs, prices and how they are effected by changing activity volumes. (Hilton and Platt 2014) But different costs demonstrate different cost behavior patterns. We cannot apply cost drivers...
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