Cost Volume Profit Analysis and Costing for the 21st Century

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Table of Contents

Introduction
Main Body
Conclusion
Reference

Introduction

Accounting has become very challenging especially with the world constantly changing, increased developments as well as innovations. It has always been used for decision making, allocation of resources and operational control. Cost volume profit analysis is one of the elements of accounting. It is used to determine the volume of costs that should be used and the volume of costs that will ensure that profits are generated (Gupta and Gunasekaran, 2005). The 21^st century organizations have been adopting several modern techniques and methods in accounting. The notion of value costing has been an issue of debate whether or not it should be adopted by the 21^st century organizations.

Main Body

I agree that 21^st century organizations should adopt the notion of value costing. This is because many accounting functions nowadays tend to eliminate activities which have no value and try to promote activities which add value to the organization. The costing process should, therefore, add value to the whole accounting process and also to the organization so as to reduce production costs and increase profitability. Therefore, to remain relevant and create value performance measurement systems, organizations should adopt costing systems which bring value to the organization. This will ensure that the costs adopted are relevant to the organization and they bring profitability.

Organizations in the 21^st century should, therefore, create value for their stakeholders by developing methods which have a notion of value such as costing methods with a notion of value. According to the article, different situations are appropriate for the application of some of the tested costing methods. Some situations are however more appropriate than others and they include activity based management, agile manufacturing, balance score card, just in the inventory, total quality management and the theory of constraints. These situations are more appropriate because it has helped the organizations to include non financial measures in the valuation and performance measurement models and make the new economy enterprises more responsive to the international and local communities.

Cost volume profit analysis has always been relevant in any organizations. It might not, however, be relevant to the 21^st century organizations because of the new methods that have been developed both in accounting and for costing. Cost volume profit analysis is traditional in nature and does not add value to the organization (Gupta and Gunasekaran, 2005). They only consider allocating costs for a considerable profit that the organization wants to achieve. This analysis might not be accurate when it is used by the 21^st century organizations because of several factors in the 21^st century that affect the costs of production in an organization and its profits as well. This means that the costs allocated will not necessarily bring the expected profits from such costs. Profits nowadays are affected by several other factors such as improvements in technology and therefore, the cost volume analysis is not a correct measure of the costs that should be allocated by the organization so as to achieve a targeted level of profit

Conclusion

To sum it up, the organizations in the 21^st century should adopt new methods of accounting and those of measuring costs and other variables if they want to add value to their businesses. This will ensure that they retain their competitive advantage and that they are profitable.

Reference

Gupta, K and Gunasekaran, A. Costing for 21^st century. Managerial Auditing Journal. Bradford. 2005. Vol. 20.

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Cost Volume Profit Analysis and Costing for the 21st Century

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