Question

Please explain,

How to do you perform decision and performance analysis using cost-volume-profit, budgeting and standard costing techniques?

Answer 1

We use Cost-volume-profit (CVP) analysis to determine how changes in costs and volume affect a company's operating income and net income. In performing this analysis, there are several assumptions made, including: Sales price per unit is constant. Variable costs per unit are constant. etc.

We use Budgeting to show the costs and revenues for each of the activities provide information and support management decisions throughout the year. It is a way of monitoring and controlling your business, particularly if you analyse the differences between your actual and budgeted income.

We use Standard costing as it is the establishment of cost standards for activities and their periodic analysis to determine the reasons for any variances. If actual cost exceeds the standard costs, it is an unfavorable variance. On the other hand, if actual cost is less than the standard cost, it is a favorable variance.

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