Assignment –REPLIES
Submit replies of at least 250 words each to at least 2 other students. Each reply must be supported by citing at least 2 peer-reviewed journal articles.
Your replies must be in current APA format and must include a reference list. Make sure that you are adding new and relevant information with each reply.
Discussion 1: AB
Planning and Decision Making
Cost-Volume-Profit Analysis
Cost-volume-profit (CVP) analysis is a methodology for inspecting the effect of various marketing and operating decisions on short-term profit based upon a relational understanding between unit selling price, output level, variable costs, and fixed costs (Blocher et al., 2022). CVP has numerous applications, including but not limited to determining the best product mix, performing strategic what-if analyses, and setting prices for services and products. The CVP approach is wherein operating profit is exclusive of nonrecurring and unusual items and is before tax and wherein total costs equals (Easton et al., 2021). Sales can be deconstructed into units sold multiplied by the selling price per unit (Blocher et al., 2022). Variable costs can be dissected into units sold multiplied by the variable cost per unit.
CVP analysis can assist organizations in strategy execution by providing an understanding of how profits and costs are affected by changes in sales volume (Blocher et al., 2022). Numerous enterprises, particularly cost leadership firms, compete to obtain lower total costs per unit through increased volume levels. The cost reductions are accomplished primarily by dispersing fixed costs over increased output units (Stoenoiu, 2018). CVP analysis affords a way to predict operating profit based on varying sales levels. The methodology also illustrates increasing fixed cost risks if volume decreases. Proverbs 3:5-6 and Psalm 55:22 exact the benefits of employing the CVP technique aiding in planning and decision making, declaring, “Trust in the Lord with all your heart, and do not lean on your own understanding. In all your ways acknowledge him, and he will make straight your paths” and “Cast your burden on the Lord, and he will sustain you; he will never permit the righteous to be moved,” respectively (Bible Gateway NIV, 2022; Merida et al., 2015).
CVP analysis also has a fundamental role in strategic positioning (Blocher et al., 2022). An organization competing on cost leadership requires CVP analysis fundamentally at the cost life cycle manufacturing stage. CVP’s role is to recognize the most cost-efficient manufacturing techniques, including outsourcing, total quality management, and automation. Whether retail, manufacturing, or service, an enterprise adhering to a differentiation strategy utilizes CVP analysis in the cost life cycle early stages to measure new service or product profitability and existing service and product new feature attractiveness, wherein CVP evaluation can aid in target costing (Liang et al., 2021).
Net Present Value Decision Models
An investment’s estimated net present value (NPV) is the difference between the present value of the project’s approximate cash outflows and the present value of the project’s expected cash inflows (Blocher et al., 2022). If project outflows are represented as negative numbers, the estimated project NPV equals the sum of the present value of the cash outflows and the present value of the investment cash inflows. The future cash flow present value (PV) equals its current dollar equivalency, discounted at an appropriate rate such as an organization’s weighted average cost of capital (WACC). The basic NPV investment rule can be generalized as accepting a project if the NPV is greater than zero and rejecting a project if the NPV is less than zero (Arjunan, 2019; Ross et al., 2016). NPV has three primary attributes lending an advantage over other discounted cash flow models: NPV uses cash flows (versus earnings as an artificial construct), NPV uses all of the cash flows of the project (other approaches such as the payback model ignore cash flows beyond a specific date), and NPV discounts the cash flows appropriately (different techniques like the accounting rate of return ignore the time value of money). The internal rate of return (IRR) characterizes an approximate economic rate of return on a contemplated investment (Blocher et al., 2022). The IRR is classified as the investment rate of return that produces an NPV of zero. The generalized IRR decision rules reflect accepting a project if the IRR is greater than the discount rate and rejecting the project if the IRR is less than the discount rate (Ben-Horin & Kroll, 2017; Ross et al., 2016). If a decision is restricted to rejecting or accepting a particular investment proposal, the IRR and the NPV models will lead to the same conclusions. However, a few circumstances complicate real-world capital budgeting decisions, such as choosing between independent and mutually exclusive projects, capital budgeting under capital rationing circumstances, and issues arising from multiple IRRs. Given these difficulties, financial theory states the NPV model should be employed. John 3:16 and Ecclesiastes 1:4 exact the strength and flexibility of utilizing an NPV approach asserting, “For God so loved the world, that he gave his only Son, that whoever believes in him should not perish but have eternal life” and “A generation goes, and a generation comes, but the earth remains forever,” respectively (Bible Gateway NIV, 2022; Merida et al., 2015). Although the NPV is considered the penultimate discounted cash flow model for making capital budgeting decisions, supervisors should be aware the process is affected by a couple of significant behavioral considerations, including incentive disputes related to fixed performance contract utilization and conflict arising from using discounted cash flow models for investment decisions but accrual accounting such as return on investment and return on equity for financial performance evaluation (Blocher et al., 2022). In times of skirmish, Keller (2012) reminds us, “God’s calling has not only an individual aspect but also a communal one.”
Discussion 2: PW
Planning and Decision Making
Today strategic analysis is an important to an organization and plays a key role in assisting with worthwhile investment decisions, future growth, and profits. Capital budgeting is the formal process of identifying, evaluating, selecting, and controlling capital investments (Blocher et al., 2022). The two techniques that can help organizations with their decision making is Internal Rate of Return (IRR) and strategic pricing is the Peak Pricing Method (PPM). The discount rate for which the net present value is zero is known as the IRR. It is the discount rate at which the costs and benefits are equal. It is a measure of the investment’s profitability and final yield. As a result, in practice, a project with a higher IRR is more desirable (Maravas & Pantouvakis, 2018). As a measure of success, investors look at the percentage return on their investments. Most organizations considering a large capital budgeting investment will compare an expected percent return to the project’s required return before deciding whether to accept or reject the project (DeBoeuf et al., 2018). Retailers, manufacturers, and even service providers are increasingly using a strategic pricing approach in which they determine prices based on what customers are willing to pay, often using analytical methods based on extensive data analysis of customers’ buying habits (Blocher et al., 2022). In economics, pricing is a central topic, and a good pricing model is critical for an organization to maximize profit. The availability of big data creates a new foundation for advanced computational pricing models to be adopted (Tian et al., 2018). Peak pricing is a component of dynamic pricing, which is a more comprehensive pricing strategy.
Businesses can modify their rates based on algorithms that consider rival pricing, supply and demand, and other market external factors. Several organizations, including hospitality, travel,entertainment, retail, electricity, and public transportation, use dynamic pricing. Based on its demands and the demand for the product, each industry adopts a slightly different strategy to repricing. An example, of PPM in transportation industry is when the New Jersey Transit Authority decides to charge commuters a higher toll fee to use the highway during rush hour and weekends when more drivers are commuting. This is an efficient way to boost revenue when demand is high, while also managing demand since drivers reluctant to pay the higher fee will avoid those times. The Bible includes a plethora of scriptures that teach us about money and how to manage it, and investing is no exception. Biblical wisdom warns us not to put our trust in wealth and riches, but in God. The plans of the diligent lead to profit, 21 Proverbs 5 “Good planning and hard work lead to prosperity but hasty shortcuts lead to poverty” (New Living Translation Bible, 2021). A wise man thinks ahead, 13 Proverbs 16 “Wise people think before they act; fools don’t -and even brag about their foolishness” (New Living Translation Bible, 2021). Timothy Keller, author and theologist wrote in his book Every Good Endeavor: Connecting Your Work to God’s Work, our motivation to generate value from the resources available to us is strengthened by a biblical concept of work. Recognizing the God who provides our resources and allows us to participate as co-cultivators in his work helps us approach our work with a persistent spirit of creativity (Keller, 2014).
