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1 Samantha Amos South University MBA5004-Managerial Economics SU01 12 November 2023

2 Analyze how the CVP analysis helps management in the planning stage of a new business. To begin, the cost-volume-profit (CVP) analysis determines how adjustments in variable and fixed expenditures effect the profitability of a corporation (Kenton, 2022). CVP stands for "cost-volume-profit." This research gives aid in determining the number of units that need to be sold in order for them to achieve a specified degree of profit margin or break even. The study was conducted to determine the number of units that need to be sold. In light of the fact that the cost per unit comes out to $3.45, the calculation that must be used in order to calculate the CVP is as follows: CVP Analysis=Sales-Variable Cost/Sales*100. Alternative 1=1.25/3.45*100=36.23% Alternative 2=0.75/3.45*100=21.73% These calculations provide essential information and assist the corporation or the economist in developing accurate estimations, which may include sales price, fixed and variable costs per unit, and several other factors that are pertinent. In addition, these data provide very important information and make it possible to make precise estimates. In addition to this, it provides the organization with information on the requirements that must be met in order to successfully produce the product. If it is not there, it may be one of the factors that causes the deadweight loss that the firm experiences if the computations are not performed properly.

3 What is the break-even quantity for each of the investment alternatives? In the field of economics, "breaking even" refers to the point at which a company's revenues are equal to the amount of money it has spent. When a corporation has reached "break even" in terms of their financial situation, they have reached this milestone. In order to calculate when exactly we will start making a profit (in terms of units), the following information is required: =FC/P-VC=80,000/1.25=64,000 units (Alternative 1) =FC/P-VC=30,000/0/75=40,000 units (Alternative 2) Analyze the breakeven differences between the two alternatives. What does the breakeven quantity tell you? Option 1 necessitates the sale of 64,000 units in order to attain a state of financial neutrality, whilst option 2 necessitates the sale of 40,000 units. The difference in total amount between the two is 24,000 units; this is the result that is acquired by subtracting option 1 from alternative 2 in order to get at the proper conclusion. In order to arrive at this result, we must first determine the correct conclusion. This mismatch may have its origin in the fact that alternative 1 has a narrower scope than alternative 2. The difference between the two options, as well as the quantity required to reach breakeven, demonstrates that option 1 requires a greater number of units to be sold in the market in order to cover all of the expenses, whereas option 2 requires a lower quantity of units to be sold in order to reach breakeven. In other words, option 1 requires a higher number of units to be sold in order to cover all of the expenses, but option 2 requires a lower number of units to be

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4 sold in order to reach breakeven. Option 1 covers each and every one of the costs, in contrast to option 2, which does not contribute financially toward covering any of them.

5 Which alternative would you recommend to the company? Explain the pros and cons of each alternative and the reasons for your selection. After looking at the facts and doing the computations, it is straightforward to arrive at the conclusion that option 1 is the one that ought to be offered since it is the one that makes the most sense. The contribution per unit and the CVP analysis are much more than what was expected for either to be the case. Even if alternative 1 has a lower number at which it breaks even, it nonetheless earns a larger profit ($1.25 per unit) once the product is sold in comparison to alternative 2. Every option that may be taken into consideration comes with both positives and negatives. If you choose option 1, for instance, there will be a bigger profit per unit, and the contribution per unit will also be greater. This is only one of the benefits of picking this choice. When the company has finished paying off all of its costs, it will then start to experience a rise in its profits. On the other side, some of the negatives include the greater break-even amount as well as the higher fixed expenses. A beneficial element of option number 2 is that it has lower fixed expenses and investments than the other choices. One of the negatives, on the other hand, is that the contribution per unit profits, which come out to $0.75, are lower than they might be.

6 Reference Kenton, W. (2022, March 27). Cost-volume-profit (CVP) analysis . Investopedia. Retrieved May 16, 2022, from https:// www.investopedia.com/terms/c/cost-volume-profit-analysis.asp Froeb (2023). Managerial Economics: A Problem Solving Approach (6th ed.). Cengage Limited.

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