Application of CVP-Analysis at the Water Transport Organizations

Author Name(s): D.V. Neizvestnaya, N.N. Kozlova, N.A. Prodanova
Author Email: kozlovakzn@mail.ru

Abstract

The article discusses the possibility and field of application the marginal analysis at the water transport organizations as one of the most advanced management tools. The authors present the currently existing methods of dividing the costs on fixed and variable parts. Considerable attention is paid to the correlation and regression cost analysis. On the basis of such analysis the water cargo transportation organizations’ costs division are carried out on to the variable and constant part. Also the regression equations for the different types of costs are made. With such a division the river transport organizations can be more accurately rank the individual business segments in to profitability, identify priority activities that is relevant to the river companies in risky and volatile business conditions.

Introduction

The stability of the enterprises is conditioned by the maximum profit opportunities for various activities in the changing demand for services, products and market conditions.Marginal analysis or CVP-analysis is one of the most promising tools for making management decisions in favor of maximizing profit. The methodology of this analysis is based, first, on the correlation between the three major economic indicators – cost, production volume (sales), profit – and secondly, on the prediction value of each of these parameters for a known value of others [1].

The following purposes of marginal analysis are used for exploitation water transport companies [2]:

– Determination of the volume of activity in various areas (transport and extraction of non-metallic construction materials (NСM)) to break even activity,

– Determination of the volume of activity in various areas (transport and extraction NCM) for the given parameters of profit,

– Determination of expected profit on activities and on the whole company for the given volume of cargo transportation,

– Determination of the income dynamics resulting from changes in the value of variable and fixed costs, volume and price on river transportation,

– Determination of priority activities of the shipping companies in the changing situations of market and also a redistribution of vessels on the line of activity;

– Evaluation of the efficiency of certain products, services production and enterprise’s individual segments;

– substantiation of the optimal solutions regarding to changes in production capacities, purchase of components, the method of the repair works and others in order to minimize costs and maximize profits.

Currently CVP-analysis is one of the most promising areas for forecasting enterprises’ activities of inland waterway transport. The use of CVP-analysis can provide a more complete assessment of the activity results of river transport companies’ certain segments. Also it can substantiate the choice of management solutions and improve the efficiency of the company’s activity [3].

Conclusion

The basis of marginal analysis is a marginal profit – the difference between revenue and variable costs (fixed costs plus profit). You can use it for more accurately ranking the individual segments of the company in terms of profitability and also for identifying priority activities. This is relevant for river transport business because its active in a risky and volatile business conditions. Besides that, the marginal profit is the basis for determining the breakeven point for each activity and for the enterprise as a whole. Also it is an effective tool for deciding about the introduction of new activities into the production program [7].

In summary, we can conclude that for the river transport enterprises marginal analysis is substantiated and promising tool for income, expenses and profit managing.

 References

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