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Cost Volume Profit Analysis: Posco Company

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Assuming that South Korean Steelmaker Posco sells only stainless steel, the sales unit for each year to match the sales performance.
Posco Company recognized stainless steel as the main product of the company. The total sales were recorded from time to time in order to calculate the total sales unit of stainless steel. Even though market price of stainless steel is not fixed every year, we take current price to calculate our total sales unit. The current price of a ton of stainless steel is KRW200,000. The table below has shown the past 5 years of the sales and the sales unit for stainless steel.
Formula to find total sales unit: Sales/product price per unit
Year Sales of the year (million KRW) Selling price per unit (KRW) Total Sales Unit …show more content…

The contribution margin (Sales - variable costs) is used to pay fixed cost of the company. When the contribution margin is equal to fixed cost, the company is in breakeven. In other words, the company does not make any profit and loss. When the contribution margin is greater than fixed cost, the company makes profit. When the contribution margin is lower than fixed cost, the company suffers losses. This theory states the important of controlling the contribution margin of a company in order to make profit. The main reasons caused the changes in contribution margin are changing in material or product cost, changing in variable expenses, changing in price and controlling …show more content…

If labor cost rise, the expenses to employ people that product units of a product go up as well. The company is suggested to reduce utilities fees and labor costs. For example, cut utility bills by turning off all electrical equipment every evening. Company could ask employees if they might be willing to reduce working hours if there are surplus recourses for the work available. Variable expense decreases add to the variable costs factor in contribution margin and this will increase the contribution margin. Thus, company will make more profit by implement this

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