Question

Then locate a news article about a store or business that has shut down and provide a link to the article. Then provide a summary of the article in your own words and brainstorm why this business or store may have failed. Then answer the question "What are some aspects of cost volume profit that may have been at play that led to the closure of this business?" Be sure to integrate the concepts of cost volume profit

Answer 1

A shutdown point is a level of operations at which a company experiences no benefit for continuing operations and therefore decides to shut down temporarily or in some cases permanently. It results from the combination of output and price where the company earns just enough revenue to cover its total variable costs. The shutdown point denotes the exact moment when a company’s (marginal) revenue is equal to its variable (marginal) costs—in other words, it occurs when the marginal profit becomes negative.

At this point, there is no economic benefit to continuing production. If an additional loss occurs, either through a rise in variable costs or a fall in revenue, the cost of operating will outweigh the revenue. At that point, shutting down operations is more practical than continuing, even if the company continues to experience losses in other areas, such as fixed costs. If the reverse occurs, continuing production is more practical.

Cost-volume-profit (CVP) analysis is a method of cost accounting that looks at the impact that varying levels ofcosts and volume have on operatingprofit.The cost-volume-profitanalysis makes several assumptions, including that the sales price, fixedcosts, and variable cost per unit are constant

The contribution margin is used in the determination of the break-even point of sales. By dividing the total fixed costs by the contribution margin ratio, the break-even point of sales in terms of total dollars may be calculated. For example, a company with $100,000 of fixed costs and a contribution margin of 40% must earn revenue of $250,000 to break even

CVP analysis is only reliable if costs are fixed within a specified production level. All units produced are assumed to be sold, and all fixed costs must be stable in a CVP analysis. Another assumption is all changes in expenses occur because of changes in activity level