The Strategy of CVP Analysis - Essay Example

? BUS599 - Integrative Project, Mod 3 SLP Introduction Clipboard Tablet Company is offering three products that include X5, X6 and X7 tablets. These tablets have been identified to be of different feature as well as price. In this similar concern, X5 tablets are mainly designed for consumers who are price conscious. This particular product would be targeted to those customers who are not concerned about the performance of the product rather than the price. The X6 tablets would be targeted for those customers who demands better performing tablets or focuses upon performance irrespective of the price of the product offered. The X7 tablets have been designed for those consumers who are concerned about both the performance as well as the price of these tablets. The company performs a CVP analysis with the aim of making valuable decisions in order to determine its sales volume of the aforementioned products along with profit margin is an effective manner (CALIFORNIA STATE UNIVERSITY, 2013) This discussion will emphasize upon the strategies that need to be formulated as well as implemented in relation to prices and research and development (R&D) for enhancing the performance of the company. Moreover, the formulation of the strategies that implemented by Clipboard on the basis of Cost-Volume-Profit (CVP) analysis will also be discussed. Time Warp 2 and CVP Analysis In order to determine the revised strategy comprising the prices, R&D allocation and any product discontinuations for different ranges of tablets of the company, the strategy of ‘Cost-volume-profit’ (CVP) analysis can be taken into concern. In this similar concern, the strategy of CVP analysis is regarded as a tool that is chiefly used for planning as well as making valuable decisions. Moreover, it is considered as a powerful instrument for devising future plans as well as developing strategies for increasing the sale of the products of the company. One of the major advantages of this tool is that it will enable the company to make appropriate decisions as well as plans for developing the three products in the business market at the beginning of the initial year i.e. 2012 (The McGraw-Hill Companies, 2011). The strategy of CVP analysis has been generally used for calculating break-even point as well as determining the prices for attaining substantial profits by increasing the sale of the products (Cambridge Business Publishers, 2005). Thus, with the assistance of CVP analysis, the company is required to formulate strategies as well as plans in order to improve the profitability as well as productivity in comparison with Joe Schmoe. The profit of Joe Schmoe has been identified to be amounted to $ 1,431,666,391 for the four years i.e. 2012 to 2016. Conversely, the main focus of Clipboard is to formulate effective strategy with the objective of obtaining profits in excess of Joe. Product X5 The tablets X5 have been in the market for five years and it is considered to be in a stage of maturity. The X5 products have been quite price sensitive that assists the company in meeting the demands of the consumers who are price conscious. In this respect, if the prices of X5 products are reduced, then the sales of these products will enhance in an effective manner. In this regard, the prices of X5 products need to be reduced in order to increase sales. Moreover, the value of price as well as R&D along with target profit are required to be taken into concern in CVP calculator with the objective of determining sales volume for accomplishing desired target profits. In this similar context, it can be affirmed that the CVP analysis depicts that the product X5 will be offered in the market for only two years and then it will be discontinued for the reason of acquiring substantial profits. This is owing to the reason that the company may experience loss in continuing the selling X5 product in the market. The CVP analysis of the company for X5 product is performed below. Product X6 The product X6 has been in the market for a period of 5 years. The purchase decisions of the customers concerning this particular tablet depend upon the quality of the product. In this regard, the company is required to invest in R&D segment in order to enhance the quality of the products. The X6 products are meant for the customers who are more conscious about the performance. Additionally, these customers are willing to pay high prices in order to procure these enhanced performing tablets. Thus, with this respect, the company should increase the price of the products for increased investment in R&D facilities. Moreover, the company is determined to acquire higher profit from this product i.e. X6 as this product is going to reach its boom period and maturity stage. These strategies will eventually assist Clipboard in attracting more customers which in return will aid in generating more profits. The CVP analysis denotes that the company will earn sufficient profit from this product X6 as customers are willing to pay higher process for better performance of this product. In this regard, the CVP analysis will assist the company in determining expected sales volume of X6 product in accordance with the proposed prices from the period 2012 to 2015. The calculation has been provided hereunder. Product X7 The product X7 of Clipboard Tablet Company is offered in the market concerning both prices as well as performance factors. The X7 products are available in the market for those customers who are conscious about both the prices as well as the performances of the product. In the initial introductory stage, the prices of these products will be low and the company may face significant losses. However, the company is determined that the level of profitability of this product will improve from the growth stage. This is owing to the reason that the company has planned to invest more in R&D segment at the maturity stage for the motive of generating more profits. In this regard, the company would charge higher prices for this product in order to cope up with the investments bestowed in the R&D segment. The CVP analysis depicts that the sales as well as the profitability of X7 products will increase in an enhanced manner with better R&D facilities. The CVP analysis of X7 products in the form of calculation has been depicted hereunder. Conclusion Clipboard Tablet Company is intending to offer its three different tablets i.e. X5, X6 and X7. These products are available in the market in order to meet the requirements of the customers by a significant level It can be affirmed that the company is offering these products with the intention of increasing the sales as well as enhancing profitability and most significantly to attain superior competitive position over the chief business market competitors. In this respect, clipboard will perform a CVP analysis for the motive of making valuable decisions on a yearly basis with respect to improve productivity along with increase market share and business reputation. The conduct of the CVP analysis will certainly assist the company in adopting as well as implementing important decisions from the period 2012 to 2015 with regard to the three products that include X5, X6 and X7. Furthermore, the CVP analysis will support the company in determining its sales volume that is largely required for achieving substantial profits effectively. In addition, the CVP analysis will also aid the company in modifying the production process along with ascertaining net loss or net gain relating to break-even point by a greater degree. The strategy i.e. the conduct of CVP analysis will certainly deliver active support to the company in enhancing its business performance as compared to Joe Schmoe. References CALIFORNIA STATE UNIVERSITY. (2013). CVP analysis. Retrieved from http://www.csus.edu/indiv/p/pforsichh/documents/CVPAnalysisVideoSlides_000.pdf Cambridge Business Publishers. (2005). Cost-Volume-Profit analysis and planning. Retrieved from http://www.cambridgepub.com/managerialaccounting/070-103_Ch%2003_Morse.pdf The McGraw-Hill Companies. (2011). Fundamentals of cost-volume-profit analysis. Retrieved from http://highered.mcgraw-hill.com/sites/dl/free/0073527114/781445/chapter_3.pdf Bibliography John Wiley & Sons, Inc. (2004). Cost-Volume-Profit analysis. Retrieved from http://www.wiley.com/college/sc/eldenburg/ch03.pdf KJE Computer Solutions, LLC. (2013). Financial calculator. Retrieved from http://www.dinkytown.net/java/BreakEven.html Read More