San Diego Mesa College Week 2 Cost Volume Profit Analysis Paper.
1 – Prior to beginning work on this discussion, please read the article A Case Method Approach of Teaching How Cost-Volume-Profit Analysis is connected to the Flexible Budgeting Process and Variance Analysis (Links to an external site.).
The authors, Machuga and Smith (2013), present in the article a multidisciplinary case-method approach to help students who want to start a successful business understand the steps necessary to achieve their desired profits using cost-volume-profit (CVP) analysis. The case-method emphasizes on the importance of CVP analysis and how it ties directly into the planning and control processes any management must take to start a potentially successful business.
After reading the aforementioned Machuga and Smith article, in an initial post of at least 200 words, discuss how cost-volume-profit (CVP) analysis and flexible budgeting can enable students to understand the different stages involved in starting up a business, projecting out results, and monitoring business performance (Machuga & Smith. 2013).
2 – Prior to beginning work on this discussion, please read the Investing Newsletter of Forbes Operating Leverage (Links to an external site.). The Finnish company Rovio Entertainment Corporation (Links to an external site.) that produces and sells the game Angry Birds, following years of falling earnings, job cuts and divestments announced that its revenue increased 34% in 2016 to 190 million euros ($201 million dollars). According to Rosendahl, the operating result improved to a profit of 17.5 million euros from a loss of 21 million in 2015, increasing earnings by 83% (Rosendahl, 2017). In 2015, Rovio Entertainment Corporation announced that its revenues for 2014 decreased nine percent compared to those of 2013; even worse, its earnings had decreased by 73% (Read the article, Investors Take Flight After Angry Birds Maker Warns on Profit (Links to an external site.)).
After reading Forbes’ Investing Newsletter, in an initial post of at least 200 words, explain why relatively small changes in companies’ revenues can result in relatively large changes in their earnings or losses. In other words, if a company’s sales increase 12%, why do its earnings not also increase 12%?