St.

Paul University Philippines

Tuguegarao City, Cagayan 3500

CVP ANALYSIS AS PRACTICED BY KETO MASTER

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A Research Paper Presented

to the Faculty of the Graduate School
St. Paul University Philippines
Tuguegarao City, Cagayan

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In Partial Fulfillment
of the Requirements for the Course,
MBA206, Cost Accounting for Managers

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By

Maria Editha R. Mallari

September 2022

SPUP Graduate School

 St. Paul University Philippines
Tuguegarao City, Cagayan 3500

ABSTRACT

This study determined how cost-volume profit analysis affected the entity's profitability. The
findings showed that there is a strong correlation between cost of production and profit as well as a
positive association between the sales value of a product and the quantity of the product
manufactured. In light of the findings, the researcher suggests that industrial sectors always use cost-
volume profit analysis in their operations in order to expand.

INTRODUCTION

Cost Volume profit is the most significant indicator of a firm's performance in the market
economy, and cost volume profit analysis is a crucial instrument for profit planning. Profit serves as a
roadmap for efficient resource allocation. Cost Volume analysis is the method of analysis used to
examine how profit responds to changes in pricing and volume charges. It should be mentioned that
formal profit planning profit analysis assists management in locating the most profitable combination
of cost and volume, helping to establish the minimum sales volume to avoid losses and the sales
volume at which the firm's profit target will be attained.
By estimating how changes in costs (both variable and fixed), sales volume, and price affect the
company's profit, Abdullahi (2015) defines cost volume profit analysis.  He claims that cost-volume-
profit analysis is the analysis of costs as they relate to a single cost unit. Any variation serves as a gauge
of performance since cost-volume profit analysis claims to be what cost should be. Cost-volume-profit
analysis refers to the predefined costs, and variance denotes the discrepancy between the predicted
costs and the actual expenses. As a result, Horngren et al. (2015) propose that a management tool for
decision-making can be an analysis of production targets and budgets.
(2016) Granof, Khumawala, Calabrese, and Smith. The budget is the greatest expenditure cap in
government work units. In performance-based budgeting, analysis of output and cost amounts may be
necessary based on conventional input costs. According to Punniyamoorthy (2017), the CVP analysis is
a method for determining how changes in value, volume, variable costs, or fixed costs may affect
benefits. Additionally, CVP served as the foundation for pricing, choosing short-term options, target
prices, and exchange value.
Profit is therefore a crucial metric for assessing a company's performance in a free-market
economy since it acts as a guide for effective resource allocation. Planning and making financial
decisions require an understanding of how various elements affect earnings. Manufacturing companies
have expanded in recent years as a result of industrialization. They compete with one another for
survival and have more advanced technology. It's also plausible that some degrees of production
efficiency are to blame for their rapid expansion. Growing technological advancements, the use of
knowledge, computerization, and the procurement of raw materials have increased complexity and
rivalry. Price, volume, and ultimately profit will be key determinants of an organization's expansion and
viability.
The activity's point at which total costs and total revenues are equal is known as the break-
even point. Cost volume profit analysis refers to variations in volume and prices. The examination of
cost evolution models known as cost-volume-profit (C-V-P) analysis identifies the relationships among
cost, production volume, and profit. According to the accounting profession, cost-volume-profit (CVP)
analysis is a managerial accounting technique that examines the impact of sales volume and product
costs on an organization's operating profit. The sole cost and revenue driver in a cost-volume-profit

SPUP Graduate School

 St. Paul University Philippines
Tuguegarao City, Cagayan 3500

(CVP) analysis, according to Hilton (2000:312), is the number of units sold. In other words, it is expected
that sales revenue is directly proportional to the number of units sold. According to Glautier et al
(2001), cost-volume-profit analysis is the systematic examination of the interrelationship between
selling prices, sales and production volume, expenses, and profits. It is a tool used to assess the firm's
profit planning process' usefulness.
RESULTS AND DISCUSSION

Company Profile
1.1 Keto Master, a Business-to-Consumer type of business, is owned and managed by Ms. Ev-
erlyn Guzman. Keto Master started on the year 2021 and is strategically modelled into a
Made-To-Order business in which the production of the item begins only after a confirmed
customer order is received.  Keto Master is operating online posting its product via social
media (Facebook). Keto Master is created by the owner, who was inspired by her friend
who is doing a Keto Diet. The owner has also stressed that too many people gained weight
during the pandemic, which is why other people are looking for ways to lose weight. One
of the most efficient methods is the keto diet.
1.2 Keto Master manufactures and sells products which are keto –friendly foods such as
breads and cakes.
1.3 Customers are mainly individuals, friends, relatives who are in ketogenic diet and support-
ing ketogenic individuals.

Keto Master’s Activities

1.4 For the acquisition of materials, the owner is personally purchasing raw materials available
in the supermarkets, baking stores and online stores.
1.5 Prior to use in the production process, all packaging materials that call for sanitation, in -
cluding cans, are sanitized. Scaling of ingredients is essential since the consumer's permit-
ted carbohydrate intake needs to be accurately calculated. The wet ingredients are added
after the dry ingredients have been thoroughly blended. The oven should be preheated
while the ingredients are being mixed. Following the completion of molding and mixing ac -
cording to the intended outcome, baking will take place. Once finished, packaging and la-
beling are carried out in accordance with the orders received. The proprietor will then let
buyers know when the products are ready for delivery.
1.6 For the quality control, the owner ensures that mixing ingredients are correctly measured
based on the desired product and for uniform taste. The owner also ensures that once raw
materials and ingredients were purchased, proper handling is being applied such as the
cleanliness of utensils, leftover ingredients are properly sealed after use, production area is
clean and so with the storage area. Finished products are also properly labelled to ensure
that these are disposed to the final consumers. Delivering of the products are also made
depending on the convenience of the customers if it is through delivery, pick-ups and
meet-ups while also practicing safe and healthy protocols during pandemic.
1.7 Sales is being done through online in which the owner has a Facebook page where she can
post or advertise her products. Anyone who is interested to a keto-friendly product, they
can simply put a message on its Facebook page and then, exchange communication on
whether to acquire the product or not. Keto Master also makes their products available for
customers who are looking for on hand products. After gathering and confirming orders,

SPUP Graduate School

 St. Paul University Philippines
Tuguegarao City, Cagayan 3500

the process of manufacturing of products will be carried and disposing or delivering the
products will depend on the customers convenience. The owner has also a cut-off time in
taking orders and window hours for the dispatch of its products in convenience of her cus-
tomers.
1.8 Keto Master also requests for feedbacks or reviews from customers especially consumers
to be able to have the opportunity to improve its product and service.
Table 1: Contribution Income of the Keto Master
Revenue Php 10, 000.00
Variable cost
Ingredients Php 3000.00
Materials Php 1000.00
Electricity and water utilities Php 800.00
Trasportation Php 200.00
Fixed Cost
Rent Php 1000.00
Net Income Php 4,000.00

2. The acquisition of materials is a non-value-adding activity because, as a manufacturer, the

owner should have a supplier to reduce production and distribution inconsistencies. Personal
investigation and acquisition of resources is time-consuming, and supplier bargaining power is
significant, posing a threat or risk to the pricing of products, which impacts the manufacturing
of goods. The search for a supplier should be completed prior to business execution. Why?
They can perform additional tasks for you, such as searching for specific components you re-
quire for the production of your products, telling you of their availability, and delivering them
to you. You can even expand your business's network, which is advantageous and ideal for ad-
vertising strategy. Likewise, production and quality control are non-value-adding activities since
they should be SMART. There is no indication that these processes provide a competitive edge
over those of other competitors because they are all standard. On the other hand, value-
adding activities are sales and after-sales since she is publishing her items on her Facebook
page and simultaneously generating the perception in her market that her business is about
keto and is therefore healthy. In addition to being Keto-friendly, her products are also diabetic-
friendly, as the proprietor explains on her website. It also facilitated the availability of benefits
for potential consumers to facilitate their research operations. They care about the opinions of
their customers and are developing services that encourage repeat purchases or sales.
3. Profitability is affected by changes in the cost and volume of the entity's manufactured and
sold items. Profit margin is determined by the price at which a business sells its items. A prod-
uct's price is determined by a number of factors, including demand and supply, market compe -
tition, and available resources. Similarly, changes in expenses have an effect on profitability; as
costs rise, so does profit.
4. Keto Master should seek out a supplier who can offer significantly reduced prices on the pro -
curement of their materials, particularly their ingredients. In addition, they can bargain for free
delivery, which will reduce their transportation costs. The owner management should establish
objectives to reduce these expenditures. This includes reducing overhead and overhead ex-
penses, as well as monitoring where even modest sums of money are spent. If a facility has

SPUP Graduate School

 St. Paul University Philippines
Tuguegarao City, Cagayan 3500

available extra space, criteria must be developed for when new equipment or processes will be
implemented there.

CONCLUSION

In conclusion, one of the goals of this research was to determine the true relationships
between cost and profit to volume of sales in the company. figuring out how the entity will benefit
from the cost volume analysis and how it will influence decisions about product price, cost reduction,
and profit forecasts. This study also revealed that there is still much need for improvement in order to
fully understand cost-volume analysis. Additionally, it was found that the business engaged in a large
number of activities that were deemed to be of little value and had an impact on its operations. In
order to fulfill organizational goals, such as plans to minimize risk and uncertainty so that the problem
of profit and other related problems will not grow, it is important that the concept of cost volume
profit analysis be thoroughly understood before implementation.

RECOMMENDATION

Following the study's findings, the following recommendations have been made:
1. The business owner should make targets to cut expenditures. This entails reducing overhead
and overhead costs and monitoring where even little sums of money are being spent.
2. The business owner should be able to locate suppliers who can save costs and help her net -
work grow.
3. Before implementing the policy and making decisions, the owner must thoroughly comprehend
the cost volume profit analysis's underlying assumptions.
4. The owner of Keto Master and other users of cost-volume-profit analysis should choose the
most effective CVP strategy to apply.
5. Future researchers can utilize the findings as a basis for investigating case studies of other  man-
ufacturing enterprises with greater expertise in cost-volume-profit analysis.

SPUP Graduate School

 St. Paul University Philippines
Tuguegarao City, Cagayan 3500

References

Abdullahi, R. S. (2015). Mastering Cost and Management Accounting. (3rd ed) Kano: Sharif
MahirInvestment Ltd
Kim, S. H. (2015). Cost-Volume-Profit Analysis for a Multi-Product Company: Micro Approach.
International Journal of Accounting and Financial Reporting, 5(1), 23-35. DOI:
10.5296/ijafr.v5i1.6832.
Horngren, C. T., Datar, S. M., & Rajan, M. V. 2015. Cost Accounting Managerial Emphasis. Edisi 15.
London: Pearson.
Granof, M., Khumawala, S. B., Calabrese, T., & Smith, D. L. 2018. Government and not-for-profit
accounting: Concepts and practices. New Jersey: Wiley.
Journal.Glautier, M. W. E and Underdown B. (2001). Accounting Theory and Practice. Pearson
Education Limited. Harlow England.
Punniyamoorthy, R. (2017). Examining Cost Volume Profit and Decision Tree Analysis of a Selected
Company. Worldwide Journal of Multidisciplinary Research and Development, 3(9), 224-233.
www.wwjmrd.com International

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