Reaction Assignment: CVP Analysis Publishing Peer Response (Reaction Paper Sample)

CVP Analysis Peer response
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CVP Analysis Peer Response
The author identifies the problem facing Greenleaf Book Group. The introductory paragraph points out that the publishing company is facing the challenge of failing to attract new clients. Gill also identifies possible roots of the problem; the company’s non-traditional financial arrangement. All the concepts of interest are set out; the 70% royalty on all book sales cost method, the authors paying Greenleaf $60,000 in production costs as well as giving up on the advance payment of $20,000. Gill identifies the course of action as the CEO forms a task force whose purpose is to provide recommendations to attract more clients.
The analysis is thorough and strongly persuasive because Gill compares and contrasts the traditional and non-traditional cost methods. Under the traditional model, Greenleaf’s fixed costs are $80,000 and the break-even number of books would be 6,400. The company would only make a profit by selling more than 6,400 books, but Gill points out that it would mean assuming more risk if a book is unprofitable. Gill presents a sound, properly vetted, and logically presented argument against Greenleaf’s non-traditional model. The main idea is that the 70% royalty cost method is unattractive to clients because they are required to assume more risk, while Greenleaf assumes none.
Gill’s response shows a consideration of all the relevant facts and information facing the company and its authors. Also, it is evidence that the student carried out sufficient research on book publishing profit models. For instance, Gill points out that the company’s marketing toll is its reputation, but with sales of about 8,000 books in the first year, many authors do not find it appealing to pay the publishing costs and assume all the possible losses.
However, the weakness of the response is the fact that it does not propose a sound recommendation to the management. Gill only points out that Greenleaf should accept a higher amount of risk to entice more authors. There is neither any critical evaluation of the alternatives nor a sound argument on the actions the management of the company should take to assume more risk. Also, I find it difficult to understand what the author means by assuming more risk (Chisholm, 1991).
The first improvement to make is to consider the second CVP assumption that costs are linear and can be accurately divided into variable and fixed. The author should incorporate the understanding of the two cost structures: high-fixed cost and a low fixed cost structure. Assuming more risk means adopting a high-fixed-cost structure where poor book sales lead to lower income. The author’s assumption that demand determines the exact CM fails to consider that the price of a product is constant and is not affected by volume changes. Therefore, Greenleaf should assume a higher proportion of the $80,000 fixed costs to attract more clients.
Another area for improvement is ...