The Notion of Value Costing - Case Study Example

XXXXXXX Number: XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX of XXXXXXX Cost Volume Profit Analysis Notion of Value Costing: Value costing is essential for all businesses in the 21st century. Use of this method permits better ability of the companies to face competition and also to build their own competitive advantage. The cost volume profit is used to identify how much a company requires selling in order to make profits. This is generally answered in terms of various factors and assumptions which include the following remaining constant, selling price, fixed costs, cost of the material, production, efficiency and productivity and also the revenue and costs are found for a single item or a group of items, and only volume acting as the single driver of the cost of production and sales. Also here the costs and revenues are linear. The cost volume analysis also helps in identifying the significance and effectiveness of projects or operations for the businesses. The concept of value costing involves all the types of costs and also considered all those that impact the organizational processes. The concept can also be explained as a costing method which charges all the costs incurred for business operations. This method however plays a very important role in important decision making and managerial decision making. These help in achieving better results from the value costing. In the 21st century, all the organizations want to expand their business and capture the opportunities (Baggaley). The notion of value costing for the 21st century is that organisations can achieve their profitability from bettered managerial decision making. This method also permits the company to identify the cost and profitability for each project. This allows the management to identify the most profitable projects and also the not so profitable projects and thereby make more effective decisions to achieve high level of competency and good use of the investments (W.Caldwell and Welch). This method permits the organisation and the management to make more informed decisions and also permits the company to rightly spread the investments across the various processes and operations of the company. The notion of value costing for the 21st century is completely appropriate and is an effective manner to correctly spread the investments across the organisation in more effective and efficient manner. Thereby trying to ensure that highest level of competency is achieved within the organisation. “Tried and True” Costing Methods: The 20th century has provided a number of methods which have been tried and true costing. There are a number of situations where these methods can be appropriately and effectively applied and to a number of situations in the present times as well. It is essential to note that the tried and true costing method can effectively be applied in situations where the duration of the projects is much longer and here the method is used to shorten the projects and to achieve the results at the earliest (W.Caldwell and Welch). These costing methods are also appropriate in cases where the management need to select a single project from a range of projects. These methods can be used to find the effectiveness of the projects and to also highlight the cost effectiveness of the projects. Using this method permits the management to make more informed decisions and more effective decisions. This also allows the businesses to improve the performance and the effectiveness of the business operations to a great extent. This method is also an effective manner to eliminate the drawbacks and shortcomings of various other methods like the absorption costing method (Baggaley). With the level of accuracy and effective responses the method permits the management to identify the most effective processes and to choose the over other projects. The method is very effective and is focused on industries or firms specifically. This method is mostly used in the case of manufacturing industries. This method allows better understanding the effectiveness of each of the products and services and also allows calculating the profitability of each product. The method can also be used in the case of organisations that deal with a number of projects simultaneously. The method allows the company to make effective managerial decisions and to identify whether or not taking up a project will prove to be financially viable for the company (Clarke). In short this method permits making better managerial decisions and also allows better selection and rejection of projects based on the profitability to the company. Relevance in the 21st Century: Cost Volume Profits Analysis has been defined as, “a technique that examines changes in profits in response to changes in sales volumes, costs, and prices” (Wiley). This method enables the accountants to focus on various elements like the product to emphasize on, the sales volumes required to achieve the target profits, also the revenue required to avoid losses and other details like the budgets for discretionary expenses and so on (Wiley). As has been discussed earlier, this method permits the management to achieve better knowledge of the relationship between the costs, profits and volumes for the organization. This method is very effective and is very relevant for the 21st century businesses as well. In the current times, where all businesses are facing high levels of competition and are being face with need for better decision making process, this method proves to be a very helpful tool to identify the profitability and effectiveness of the business. The cost volume profit analysis also assists in better price determination for the products and is very effective and helpful in the business operations. With the assistance of pricing for the products and services, the management can also use the tool to help budget the production for the company and can use this to ensure better productivity and improved competitiveness of the markets. On the whole, the use of CVP is very helpful and effective in the current business settings and this technique is very helpful in better decision making and also better development of strategies likewise. Hence it would be appropriate to say that this method is very effective and relevant even in the 21st century as well. Works Cited Baggaley, Bruce L. Solving The Standard Costing Problem. August 2003. 10 September 2010 . Clarke, Peter. "Bring Uncertainty into the CVP Analysis." Accountancy (1986): 105–107. W.Caldwell, Charles and Judith K. Welch. "Applications of Cost-Profit-Volume Analysis in the Governmental Environment." Government Accountants Journal (1989): 3 - 8. Wiley. Cost Volume Profit Analysis. 27 September 2004. 10 September 2010 . Read More