Locational cost profit volume analysis. Cost 2022-12-10

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Locational cost-profit-volume (CPV) analysis is a tool that businesses use to assess the feasibility of a potential project or investment. It involves analyzing the costs and revenues associated with a project, as well as the volume of sales or output that is expected to be generated. By examining these three factors together, businesses can make informed decisions about whether a project is likely to be profitable and worth pursuing.

To conduct a locational CPV analysis, businesses first need to identify all of the costs associated with the project, including fixed costs (such as rent or salaries) and variable costs (such as materials or transportation). Next, they need to estimate the volume of sales or output that is expected to be generated by the project, and calculate the expected revenue based on this volume and the projected price of the product or service.

Once the costs and revenues have been estimated, businesses can calculate the CPV ratio, which is the difference between the expected revenue and the expected costs, divided by the volume of output. This ratio can be used to determine whether a project is likely to be profitable, and can help businesses decide whether to move forward with the project or not.

There are several factors that can influence the results of a locational CPV analysis. For example, changes in the market price of a product or service can significantly impact the expected revenue and profitability of a project. In addition, changes in the cost of inputs (such as raw materials or labor) can also affect the results of the analysis.

One of the key advantages of using a locational CPV analysis is that it allows businesses to take into account the specific location of a project and how it might impact costs and revenues. For example, a business might find that a project is more profitable in one location due to lower costs or higher demand for the product or service. This information can be valuable when deciding where to locate a new facility or business venture.

Overall, locational CPV analysis is an important tool that businesses can use to assess the feasibility and profitability of a potential project or investment. By carefully analyzing costs, revenues, and volume, businesses can make informed decisions about whether a project is likely to be successful and worth pursuing.

chapter 8: Location Planning and Analysis Flashcards

locational cost profit volume analysis

Alternatively, determine which location will have the highest profit. This is important because a poor choice can make it very difficult to meet demand and manage costs effectively. There is only one transportation mode between each source and destination. Solutions to problems as well as improvements made at one plant can be shared with the other plants Question 1: From a company standpoint, which factors determine the desirability of a community as a place for its workers and managers to live? Nearness to raw materials would be most important to a: A. Gain government approval of location alternatives d. First, a company must determine the driving factors that will influence which areas are suitable locations.

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BSAT 382 Chapter 8 questions Flashcards

locational cost profit volume analysis

The Skulls, a student social organization, has two different locations under consideration for constructing a new chapter house. None of the above 5 Which of the following would you establish a composite value for? An analysis of the Cost Volume Profit CVP relationship aims to uncover the relationship between the following two factors and their impact on profit. These are the necessary expenditures and can be fixed or variable in nature like the office expenses, administration, sales promotion expense, etc. There are three possible location choices. For a business to be profitable, the contribution margin must exceed total fixed costs. The company wishes to find the most economical location for an expected Holooly. Demand of destinations c.

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Evaluating Location Alternatives

locational cost profit volume analysis

For example, Telephone expenses comprise a fixed monthly charge and a variable charge based on the number of calls made. Develop location alternatives b. Analysis of CVPs reveals the difference between fixed and variable costs, giving companies a clear sense of whether their products or services are profitable. Example: Factor Rating A photo-processing company intends to open a new branch store. Why is cost Volume profit important in business management? All costs are linear d.

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Locational cost profit volume analysis assumes A I III and IV only B II and III

locational cost profit volume analysis

Cost Volume Profit Analysis Formula The computing of Cost volume profit analysis formula is as follows: You are free to use this image on your website, templates, etc. Use the following information to answer question 1-3. The Center of Gravity Method c. The transportation model can be applied to solve factors including: I. Here it is used for location analysis. Cost-volume-profit analysis consists of three elements.

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CVP Analysis Guide

locational cost profit volume analysis

A manufacturing firm is considering two locations for a plant to produce a new product. I, III, and IV only B. Variable costs are linear for the range of probable output. The method treats distribution cost as a linear function of the distance and the quantity shipped. The contribution margin may also be calculated per unit.

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Chapter 8: Location Planning and Analysis Flashcards

locational cost profit volume analysis

A dominant factor that influences the location decision of a manufacturing firm is: A. It serves as an expression of the relationship between total sales and total cost and profit in management accounting. Cost-volume-profit analysis CVP is used to aid in planning and monitoring operations for the company, by identifying the critical levels of operational actions: to avoid losses, to increase profits, to plan future operations, and to keep track of the company's performance. When using the Center of Gravity Method, what are the two differing variables for equal and unequal quantities shipped, respectively? Decide on a common scale for all factors e. All of the above 5.

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Cost

locational cost profit volume analysis

Geographic Information System C. These components involve various calculations and ratios, which will be broken down in more detail in this guide. What methods are used to evaluate locations? Another assumption is all changes in expenses occur because of changes in activity level. D New ideas for future investments. He is considering three locations—Athens, Brussels, and Lisbon—for a new plant. II and III only C.

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what is the methods use to evaluate the location of a business that considers cost

locational cost profit volume analysis

None of the above e. Question 2: What is NOT a risk a corporation must consider when planning a location? Question 5: What is the center of gravity method? The formula for CPV takes the sum of fixed costs and variable costs as the total cost. The total cost associated with a given plan is a linear function of shipping costs. Further, we can see that The Fixed Cost Fixed Cost refers to the cost or expense that is not affected by any decrease or increase in the number of units produced or sold over a short-term horizon. Choose the alternative that has the highest composite score, unless it fails to meet the minimum acceptable score.

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CHAPTER 8 Flashcards

locational cost profit volume analysis

To learn more, launch our 4 Margin of Safety In addition, companies may also want to calculate the margin of safety. The locational cost-profit-volume analysis involves determining the level of production at which a company's costs and profits break even. Variable costs are logarithmic c. An analysis of the Cost Volume Profit CVP relationship aims to uncover the relationship between the following two factors and their impact on profit. The two locations have fixed and variable costs as follows: If the annual demand will be 20,000 units, what would be the cost advantage of the better location? Geographic Data System B. When a location evaluation includes both quantitative and qualitative inputs, a technique that can be used is: A.

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