Cost behavior, break-even analysis, margin of safety, cost measurement and theory of constraint

QUESTION

Each group will discuss the following 5 concepts:

Cost behavior, break-even analysis, margin of safety, cost measurement and theory of constraint.

Provide examples from one or more of the following sources: your Red Cross documents.  In your examples, please describe how these concepts are utilized and why they matters to the decision-makers of the organization. No ref page needed. Make the paper flow like a conversation.

https://www.redcross.org/about-us/news-and-events/publications.html

https://www.redcross.org/content/dam/redcross/about-us/publications/2019-publications/Annual-Report-2019.pdf

ANSWER

Economics 

Cost of behavior is that special relationship that exists between the activities that the business engaged in, and how such activities may be affected by the cost that comes with them. Cost behavior determines which activities that a given entity may delve into. If the activity is costly then chances are high that the entity will not take part in that particular activity. The vice versa also applies in relation to the aforementioned example. When it comes to Red Cross, this concept is utilized when they decide for instance to engage partly on a program to provide relief aid to people who need such. It may do it partly if there is also another lot that requires the same help.

Break-even analysis is a strategy that ensures that the entity does not make losses and also does not profit. How this works is that the entity will loan its finances in such a way that everything is decided prior to the actual date when the activity happens. This ensures that the company does not spend beyond what it had planned for this, not making any loss or profit. It ensures that all the costs that the company can incur have been covered very well. How this concept is utilized by Red Cross is based on the fact that it set out the amount of cash and resources that it would spend if a disaster occurs, and this ensures that they neither make nor lose money(American Red Cross 2019).

The margin of safety Is a term that is closely associated with the concept of the break-even analysis. This is because it helps an entity to remain safe when allowing the break-even analysis. In essence, it ensures that the particular entity does not go beyond what it had set out at the break-even analysis, mainly in terms of finance. Red Cross ensures that it does not go beyond what it has planned and set out. This is for instance when training caregivers and lifesavers. It cannot definitely train everybody because such is an expensive cost, which has to be planned for.

Cost measurement deals with the aspect of gauging how much activity can cost the organization. There are activities that are costly when it comes to finances. Then there are those which are not costly. The reason for gauging is so that the entity does not proceed into carrying out an activity, which may stall halfway or which may not generally end, because of the financial issues that may come along. The idea is also used by the Red Cross. You will find Red Cross nit coming in fully when there is a disaster, but will partly contribute into the rescue missions(American Red Cross 2019). The reason for not coming fully is because of if course measurement.

The theory of constraint is a strategy of identifying an obstacle that may stand on the way of a particular course, and working towards reducing the effects that it might have on the course. This effect is usually on the negative side. Red Cross uses this concept when trying tp provide relief to a place that is naturally inaccessible. This they make the organization to divert to other ways of ensuring that they provide the relief services to the people. Thus, they will maybe use helicopters to ensure they achieve the goal of that course.

 

References

 

American Red Cross. 2019. “Annual Report .” https://www.redcross.org/content/dam/redcross/about-us/publications/2019-publications/Annual-Report-2019.pdf (September 18, 2020).