Cost Volume Profit Analysis and Costing for the 21st Century

Cost value is the analysis of different divisions or business units of a firm on the basis of their opportunity cost and economic rent (“Cost value definition”). The objective of cost value is to determine which division or unit should be kept, expanded, sold, or shut down (“Cost value definition”). Cost analysis is an important component of all economic evaluation techniques, especially when it comes to planning and self-assessment.

Cost value is the analysis of different divisions or business units of a firm on the basis of their opportunity cost and economic rent (“Cost value definition”). The objective of cost value is to determine which division or unit should be kept, expanded, sold, or shut down (“Cost value definition”).

Cost volume profit analysis is an analysis that deals with how profits and costs change with a change in volume (“Business definition for:,”). In particular, it looks at the effects on profits of changes in such factors as variable costs, fixed costs, selling prices, volume, and mix of products sold (“Business definition for:,”).

Cost Volume Profit Analysis and Costing for the 21st Century The purpose of this paper is to address the notion of value costing for the 21st century organizations. In order to satisfy that objective, I will begin by defining and explaining value costing. From there I will provide points as to whether or not I agree with the notion of value costing.

I will then discuss situations that could be more appropriate for the application of “tried and true” costing methods of the 20th century and explain if they are industry or firm specific.

Finally I will discuss cost-volume-profit analysis and discuss whether or not it is still relevant in the 21st century business organization. Cost value is the analysis of different divisions or business units of a firm on the basis of their opportunity cost and economic rent (“Cost value definition”). The objective of cost value is to determine which division or unit should be kept, expanded, sold, or shut down (“Cost value definition”). Cost analysis is an important component of all economic evaluation techniques, especially when it comes to planning and self-assessment.

Cost analysis is particularly useful for the following: planning and cost projections, assessing efficiency, assessing priorities, accountability, and assessing equity. With planning and cost projections, a cost analysis can help determine the level of funding necessary to achieve a desired change. When assessing efficiency, cost analysis makes it possible to assess the efficiency of programs by comparing cost profiles from equally effective programs and identifying cost categories for further efficiency studies (“Cost analysis: introduction,”).

With assessing priorities, cost analysis is helpful in that it provides information on the health resource allocation. When looking at accountability through a cost analysis, it allows one to know how the funds are spent and whether they are spent as intended (“Cost analysis: introduction,”). Finally, with assessing equity, cost analysis can help one assess how health resources are distributed among various population groups (“Cost analysis: introduction,”).

I agree with the notion of value costing.

By looking at value costing through a cost analysis, it benefits a copy as the cost analysis first finds, quantifies, and adds all the positive factors, then it identifies, quantifies, and subtracts all the negatives and the costs (Reh). By performing a cost analysis, it allows a company to make up their mind. A company benefits from a cost analysis in that it allows a company to improve business processes due to better available information (“Cost benefit analysis,”). By doing this the company can make better decisions which will ultimately improve the moral of the staff.

Cost methods is a financial recording and reporting method in which a parent firm’s investment in a subsidiary is shown at cost, without indicating the effect of the subsidiary’s profit or loss on the investment (“Cost method,”).

There are various methods of costing, all though the principles behind each method of costing are the same, the methods of analyzing and presenting the costs differ with the nature of the business. I will briefly discuss the three methods. The first method is job costing.

Job costing is used where production is not highly repetitive and in addition consists of distinct jobs so that the material and labor costs can be identified by order number (“Basic cost concept,”). The second method is the contract costing method, this method is normally used were large-scale contracts are carried out. The third method is cost plus costing, this is where contracts in addition to cost where agreed upon with the sum or percentage to cover overheads and fit is paid to the contractor.

Different industries follow different methods for ascertaining the cost of their products. The method to be used by organizations, depends on the nature of the business. Cost volume profit analysis is an analysis that deals with how profits and costs change with a change in volume (“Business definition for:,”). In particular, it looks at the effects on profits of changes in such factors as variable costs, fixed costs, selling prices, volume, and mix of products sold (“Business definition for:,”).