AN ANALYSIS OF COST-VOLUME-PROFIT AND PROFITABILITY TARGET

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AN ANALYSIS OF COST-VOLUME-PROFIT AND PROFITABILITY TARGET

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

Cost-volume-profit (CVP) analysis and profitability targets play a crucial role in the realm of managerial decision-making and financial planning. These concepts provide valuable insights into the relationship between costs, sales volume, and profit, allowing organizations to make informed business decisions, set realistic financial goals, and ensure long-term viability. Understanding the principles and applications of CVP analysis and profitability targets is essential for managers and financial professionals to optimize resource allocation, control costs, and drive profitability.

In today’s competitive business landscape, organizations face numerous challenges in achieving and sustaining profitability. Managers need accurate and reliable financial information to make sound decisions that maximize revenue and minimize costs. CVP analysis offers a framework to understand how changes in volume, costs, and prices impact the organization’s profit margins. By analyzing the relationships between these variables, managers can identify breakeven points, determine the level of sales required to achieve desired profit levels, and evaluate the impact of cost structures on profitability.

Cost-volume-profit analysis is a managerial accounting technique that focuses on the interplay between costs, sales volume, and profit. It provides a systematic approach to understanding how changes in these factors influence the financial performance of an organization. CVP analysis relies on certain assumptions, such as fixed and variable costs, linear relationships, and

1.2 STATEMENT OF THE PROBLEM

Cost-volume-profit (CVP) analysis is a managerial tool and can be used to achieve corporate profitability in any organization. Cost-volume-profit (CVP) analysis is a tool that can be used in firms that are faced with problems having cost, volume and profit implications. It is a true fact that certain cost elements of a firm not only vary but are usually large in proportion e.g. material and labour. Therefore, the main concern of this research study is to profer solution to the following problems: Non-employment of sales value in the determination of profitability in firms. Lack of relationship between sales value and total cost of firms. Non-incorporation of sales value in investment decision in firms .Inadequate financial data for cost and profit analysis in firms.

1.2 OBJECTIVES OF THE STUDY

This research study will be focused on cost-volume-profit analysis and profitability target (A survey of some selected firms listed in Nigerian Stock Exchange). The main objective of this study are as follows:

To determine the effect of sales value on the profitability in firms.

To know the relationship between sales value and total cost of firms.

To make provision for the incorporation of sales value in investment decision of firms.

To justify the need for adequate financial data for cost and profit analysis in firms.

1.3 RESEARCH QUESTIONS

What is the effect of sales value on profitability in firms?

What is the true relationship between the sales value and total cost of firms?

How will firms incorporate sales value in making investment decision?

Why is there financial data inadequacy for cost and profit analysis in firms?

1.4 RESEARCH HYPOTHESES

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