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Hello Tutor hope you are doing well.
I had a small doubt. Will it be okay to say that C.V.P Analysis also acts as feedforward control..For instance we can say that, using C.V.P Analysis we can find the required sales volume to achieve the desired profit, while compare this figure with how much sales volume organisation can potentially earn in the period.
Therefore providing information well in advance as to whether the target profit would be achieved or not and therefore taking corrective actions well in advance
CVP analysis is used to determine the minimum sales volume to avoid losses (BEP) and the sales volume required to achieve the profit goal of the firm. It is an important tool for short-run decisions about costs, volume, profit, selling prices for profit planning and to set the desired activity level of the firm.
CVP analysis can be used to make informed decisions about pricing, product mix, and resource allocation. It provides valuable insights into a company’s financial performance and helps managers make informed decisions that maximise profits.Feedforward control is one of budgeting aspect which tries to identify and prevent the problem before it even occurs. This method will compare the actual result with the forecast and figure out the solution before it too late. We usually do it in the middle of the budget period. It aims the predict the future and compare it with the company goals, and the action will be taken if there is any significant variance.
Thankyou Tutor
Another thing that i wanted to ask was, often time in graph the Margin of Safety (MOS) is represented through the difference between Break-even Volume and Budgeted Sales Volume.
Can we also show it as the difference between Break-even Value ($) and Budgeted Sales Value ($).
As MOS in % terms are exactly the same through either of the method
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