I want to highlight the main findings of the report on the cost volume analysis for the product ‘Friend’. In the previous cost structure fixed cost of manufacturing and logistics were also included in the costing of the product. However to arrive at the true cost one can take the fixed costs out and include only the variable cost to price the product. This will help the firm lower the selling price and recover the cost using the high volume of product sold in the market. In case we have assumed that if one decreases the selling price by $0.24 per unit and 15% saving achieved due to R&D one can achieve 15% of increase in the sales. Here in the costing of the product only the variable costs have been included. Looking at the profit attained due to increase in the sales of the firm it can be seen that the firm gross margin has increased and the return on the assets has increased to 28%. This is above the minimum value of the 25%. Due to the change in our cost structure the sales are expected to increase for our competitor the sales are again expected to decrease. Since our cost structure is expected to be same it would be difficult for him to decrease the prices.
Thus including the new cost structure can help the firm have new selling price for the product and can also help to increase the sales of the firm. Firm is above the minimum rate of 25% and hence can spend more money on advertisement to increase the sales. Since the firm main target would be to increase the volume to increase the profit.