The paper presented the study on the subject analysis of performance of Cost Volume Profit analysis in

manufacturing companies in Tanzania, a case of Tanzania Portland Cement Company. The general and
main objective of the study was to determine if CVP can assist management in formulating policies by
projecting the effects of different prices structures on cost and to highlight the usefulness of CVP
analysis in manufacturing companies in Tanzania.

Cost Volume Profit analysis is a model which is used to plan profit. It is used to measure the economic
characteristics of manufacturing a proposed product. A critical part of CVP analysis is the point where
total revenue equals total cost. (Duncan1996). Cost volume profit, like all financial models, is based on a
set of simplifying assumptions that reduces the complexity of resources allocation decision to make
decision more tractable.

Usefulness of the application of CVP include;

CVP is an important financial analysis that helps managers to deal with their routine problems as well as
strategic issues in the course of carrying out their business activities. Such issues can come up when
preparing company budget, financial plans or when sales promotion and other functional decisions are
taken.

CVP analysis assist in evaluating performance for the purpose of control. It enables the firm to
understand the level of fluctuations it can afford in its selling price. Whenever firms increase their selling
price to increase to increase they must know the new level of sales they have to meet to sustain the
desired profit.

CVP analysis helps the business to know its most profitable products or services among various that the
business offers in the market. This aids the management to focus more on profitable products compared
to others.

Also CVP analysis helps in enreaching the understanding of the relationship between costs, volume, and
price as factors affecting profit, enabling the management to make assumption which will assist the
decision- making process in the short run planning period.

Shortfall for the application of CVP include;

CVP analysis uses accounting profitably as the primary decision criterion for evaluating resources
allocation decision. It ignores the cost of capital and treats it as if it were zero. The failure of CVP analysis
to incorporate the cost of capital into a product’s cost function can lead to underestimating a products
cost while overstating its profitability.

CVP analysis is based upon certain assumptions which can rarely be completely realized in practice. This
leads managers and policy makers to forget about the usefulness of the model. Hence the fragility of
these assumption places limits on the reliability of CVP analysis as a tool in decision making.

CVP seemed to be not well known and hence not applied for managers to find out and decide what to
do to improve business and get planned values of certain indicators.

Recommendations;
Recommendation to policy makers, costs have central role in business policy of the company. It is
necessary to consider the issue because there have been increase in risk, growing competition, social
responsibility and changes in consumer preference. Thus policy makers should pave the way for policy
implanters to select the model for decision making and test the sensitivity for the model with alternative
scenarios and judge which outcome best describe their beliefs about the future.

Recommendation to managers, for analysis of cost control purpose, workers should be enlightened on
the objective of the organization and department estimates as this would inspire in them a sense of
recognition of their corporate importance by the management. It is also highly recommended for the
decision makers to grasp the understanding of the economic consequences of cost structure,
contribution margin, and break even sensitivity to enable a business to create a decision model that
enhances the company profitability.

Also, CVP analysis is important in using both lifecycle costing and target costing. In life cycle costing CVP
analysis is used in the early stage of the product’s cost lifecycle costing, CVP analysis can assit in target
costing at these early stages by showing the effect on profit of alternative products designs that have
different target cost.

How would I improve this paper?

The study is based on few structured questionnaire in survey and some secondary data. Therefore in
order to have more of the CVP analysis the study should focus on other method of data collection like
focus group discussion together with other cost management tools.

The paper should consider other management accounting techniques used as management tools like
marginal costing and differential costing analysis to help make decision and for profit maximization.
Especially in the today’s world which is full of competition.

The paper should state the reasons behind the relevance, challenges, usefulness and satisfaction level so
that the reader can understand clearly the reasons which have led to the challenges or the satisfaction
level of the analysis.