A. The trend for cost of goods sold is increasing as a percentage of sales and the trend for total marketing costs as a percentage of sales is decreasing. What does this suggest to the company CEO? a. The CEO would want to analyze whether marketing is pushing production to hard (increasing expenses) to make the marketing effort easier (less expenses). b. That production is spending too much money to produce the product c. The CEO would want to analyze whether production is pushing marketing to hard to make the production effort easier and thus lower marketing expenses d. That the marketing manager is doing a good job because marketing expenses are declining as a percentage of sales B. What does the previous scenario suggest to a company CEO? Sales in units are increasing and the average price is decreasing. Net operating income is decreasing. a. The CEO should wait and hope things get better b. The CEO would want to carefully analyze the finance manager's work to ensure it is correct c. The extra volume is not making up for the lower price d. The CEO would want to check with the production manager on why this is happening
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
A. The trend for cost of goods sold is increasing as a percentage of sales and the trend for total marketing costs as a percentage of sales is decreasing. What does this suggest to the company CEO?
B. What does the previous scenario suggest to a company CEO? Sales in units are increasing and the average price is decreasing. Net operating income is decreasing.
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