Homework Lance
Amp-415
Grand Canyon University
Diamond Dynamics
There are many ways and methods of cost accounting being applied in managerial economics. Cost-volume profit (also known as CVP) analysis is centered on defining the breakeven point of the cost and volume of items. It can be helpful for managers in making their short-term economic decisions, and also for general educational purposes. Cost-volume profit analysis makes several expectations in order to be pertinent. It usually accepts that the sales price, fixed costs and variable cost per unit are continual. Administrating this analysis involves using many different problems using price, cost and other variables and planning them out on an economic graph.
The CVP approach to analysis is beneficial, but it is restricted in the amount of information it can offer in a multi-product set-up. Much of the analysis that is done by business managers who use this approach is normally done based on a single product. With Diamond Dynamics it is talking about it being $850,000 to purchase new and better equipment that will help speed up production with better quality work. Since this is just a single purchase that will help better the company I feel that it should be done. If they bought this equipment that will speed up productivity, with a better quality then what they have now, they will be able to hopefully make a better profit. If the machines that they wanted to purchase only sped up the product but not the quality of work then they may or may not lose a profit for people would want the same quality to better quality in the familiar product that they are used to purchasing off the shelves. If the quality goes down or they can find the same quality for cheaper, then they may decide to go with the different product and then Diamond Dynamics will start losing money due to supply and demand. Now if the machine makes the products with a higher quality then the company may be able to increase the price a little and make even a bigger profit then what they were making originally.
So in my opinion, if they make this purchase it will help sales and profit increase. It will also cut down labor cost for they will not need as many people running the machines or doing work. Although this is a hefty I investment, it is still an investment to help make the company flourish in the future. So yes, they should make this purchase to help set the company up for a successful and bountiful future.
Reference
Retrieved from: http://fisher.jsc.vsc.edu/manacct/wk08_cvp.html May15 2015
Retrieved from: http://en.wikipedia.org/wiki/Cost%E2%80%93volume%E2%80%93profit_analysis
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