## Introduction

The Clipboard Tablet Co. is an organization that produces and sells electronic tablets in the mass market. The organization has been developing and selling its three brands of tablets namely; X5, X6 and X7. The company has been experiencing good sales and it has been able to manage its cost at a fixed level. However, the company is in need of changing its strategy on selling and production.

As a result, we will conduct a CVP (Cost-Volume-Profit) analysis to look at strategies the company could deploy to remain competitive in the market. The analysis will be conducted between the years 2012 through to 2015 with a bid of understanding the fundamentals used in running this company. In the process of undertaking the analysis we will come up with strategies that could help improve the brand and financial position of the company.

## Analysis

In the process of conducting a CVP analysis, we have to look into the cost of production, units sold and units of sales for the four different years. The CVP analysis is shown below:

In the year 2012, the company sold the three different tablets at different prices and all the three tablets had different number of units sold. The main point of conducting the CVP analysis in most cases is to understand when and how the business will break even in terms of finances (Stice, 2010).

### 2012

In the year 2012, the Clipboard Tablet Co. had sales figures amounting to $1.32 billion for the three tablets. However, during the same period the certain costs remained the same such as fixed costs and R &D Costs.

For the X5 tablet, sales figures for the year 2012 amounted to $492,861,818 while the profit for the tablet stood at $143,922,710. Based on this data we could find out the costs;

Profit = Sales – Costs, $143,922,710 = $492,861,818 – x (Costs),

Therefore, x (Costs) = $492,861,818 – $143,922,710 = $348,939,108

Costs = FC (Fixed Costs) – Variable Costs, $348,939,108 = ($144,000,000 + $22,000,000) – Variable Costs.

Variable Costs = $348,939,108 – $166,000,000 = $182,939,108

In the year 2012; 1,859,855 X5 units were sold and using this analysis we need to find out the break-even point. Q = FC (Fixed Costs) ÷ (SP (Sale price per unit) – (VCP (Variable cost per unit)). Between the years, 2012 through to 2015, the Clipboard Tablet Co. maintained the sales price for its X5, X6 and X7 tablets at $265, $420 and $195 respectively. Therefore, X5 Variable cost per unit 2012, = $182,939,108 ÷ 1,859,855 = $98.36.

Q = $166,000,000 ÷ ($265 – $98.36), = $166,000,000 ÷ $166.64 = **996,159 units**

**While for X6**, Profit = Sales – Costs, $256,273,109 = $786,851,911 – x (Costs),

Therefore, x (Costs) = $786,851,911 – $256,273,109 = $530,578,802

Costs = FC (Fixed Costs) – Variable Costs, $530,578,802= ($144,000,000 + $22,000,000) – Variable Costs.

Variable Costs = $530,578,802 – $166,000,000 = $364,578,802

Q = FC ÷ (SP – VCP), where SP = $420, VCP = $364,578,802 ÷ 1,873,456 units = $194.6

Q = $166,000,000 ÷ ($420 – $194.6), = $166,000,000 ÷ $225.4 = **736, 468 units**

In the case of X7 tablets, we could not conduct a CVP analysis for the years 2011 to 2013, since during this period it was difficult to determine the variable costs incurred in the process of producing the tablets.

### 2013

**X5 CVP, **Total costs = Sales – Profit, = $378,331,427 – $92,059, 891 = $286,271,536; Variable Costs = Total Costs – Fixed Costs, = $286,271,536 – $166,000,000 = $ 120,271,536. VCP = $120,271,536 ÷ 1,427,665 units = $84.2. Therefore, Q = FC ÷ (SP –VCP), = $ 166,000,000 ÷ ($265 – $84.2) = **918,141 units**

**X6 CVP, **Total costs = Sales – Profit, = $809,316,039 – $264,830,872 = $544,485,167; Variable Costs = Total Costs – Fixed Costs, = $544,485,167 – $166,000,000 = $378,485,167. VCP = $378,485,167 ÷ 1,926,942 units = $196.4. Therefore, Q = FC ÷ (SP –VCP), = $ 166,000,000 ÷ ($420 – $196.4) = **742,397 units**

### 2014

**X5 CVP, **Variable Costs = $101,787,289, VCP = $101,787,289 ÷ 701,981 units = $ 145, Q = FC ÷ (SP –VCP), Q = $166,000,000 ÷ ($265 – $145) = $166,000,000 ÷ $120 = **1,383,333 units.**

**X6 CVP, **Variable Costs = $212,508,959, VCP = $212,508,959 ÷ 817,342 units = $260, Q = FC ÷ (SP –VCP), Q = $166,000,000 ÷ ($420 – $260) = $166,000,000 ÷ $160 = **1,037,500 units.**

**X7 CVP, **Variable Costs = $26,906,147, VCP = $26,906,147 ÷ 448,435 units = $60, Q = FC ÷ (SP –VCP), Q = $166,000,000 ÷ ($195 – $60) = $166,000,000 ÷ $135 = **1,229,629 units**.

### 2015

**X5 CVP, **Variable Costs = $75,469,529, VCP = $75,469,529 ÷ 520,479 units = $ 145, Q = FC ÷ (SP –VCP), Q = $166,000,000 ÷ ($265 – $145) = $166,000,000 ÷ $120 = **1,383,333 units.**

**X6 CVP, **Variable Costs = $147,166,845, VCP = $147,166,845 ÷ 566,026 units = $260, Q = FC ÷ (SP –VCP), Q = $166,000,000 ÷ ($420 – $260) = $166,000,000 ÷ $160 = **1,037,500 units.**

**X7 CVP, **Variable Costs = $37,634,498, VCP = $37,634,498 ÷ 627,241 units = $60, Q = FC ÷ (SP –VCP), Q = $166,000,000 ÷ ($195 – $60) = $166,000,000 ÷ $135 = **1,229,629 units**.

## Recommendation

The CVP analysis is a financial formula that is meant to analyze the breakeven analysis in terms of production of goods and services. This analysis is usually meant to show the break-even point whereby the company will not experience any loss or gain. Based on this, we realize that in the year 2012, X5 and X6 tablet sales units exceeded the break-even points by 86.7% and 154.4% respectively (Cafferky, 2010).

In the year 2013, the CVS analysis shows that the sales of tablets exceeded the break-even points by 55.5% and 159.5% respectively for X5 and X6 tablets. In the year, 2014 the trend changed whereby sales of tablets against the break-even points declined by 49.3%, 21.2% and 63.5% for all the tablets.

The same results were witnessed in the year 2015 when the sale for all the tablets declined tremendously against the break-even points by 62.4%, 45.4% and 49% for X5, X6 and X7 respectively (Drury, 2011). These results show that the in the year 2012, the sales for X5 and X6 tablets were performing well and this contributed to profitability for the company. The same scenario was repeated in the year 2013 but this time the sales volume for X5 tablets declined slightly.

Nevertheless, in the year 2014 the sales and volumes of tablets declined tremendously and this continued to worsen in the year 2015 for X5 and X6 tablets (Cafferky, 2010). Although, the X7 tablet did not meet the break-even points in the years 2014 and 2015, it sales improved by around 15% in that period.

CVS analysis can be combined with other formulas such as return on assets and direct intellectual capital (Kinney, 2012). The popularity of the X7 brand should have initiated the company to spend more on its production while lowering the sale prices for X5 and X6 tablets in a move meant to get to the break-even point.

## References

Cafferky, M. & Wentworth J. (2010). *Breakeven Analysis: The Definitive Guide to Cost-Volume-Profit Analysis in Business*. London: McGraw Hill Publishing.

Drury, C. (2011). *Management* and *Cost* Accounting. Boston, MA: Routledge.

Kinney, M. & Raiborn, C. (2012). *Cost Accounting: Foundations and Evolutions, 9th ed.: Foundations*. Chicago, IL: John Wiley and Sons.

Stice, J. & Swain, M. (2010). *Accounting: Concepts and Applications: Concepts and Applications*. New York, NY: Lippincott Williams & Wilkins.