Cost, Volume, and Profit Formulas

Subject  > Businesss Research Papers  > Accounting

Cost, Volume, and Profit FormulasCost-volume-profit (CVP) analysis is based on five components and the interrelationships found between them. The five components consist of volume or level of activity, unit selling prices, variable cost per unit, total fixed costs, and sales mix. The volume or level of activity is the activity that causes changes in the behavior of cost. The changes should be correlated with changes in cost. For instance, Hewlett Packard (HP) provides company cars to many of its sales professionals, the miles driven cause change in the behavior of costs. The unit selling price is linked directly to profit and includes all costs and expenses pertaining to production and sale of the product. For instance, if a product becomes unprofitable, a ...

... +$800,000 +$0The Cost-Volume-Profit Relationships (2008) defines contribution ratio as, “the contribution margin per unit divided by the unit selling price” (pp. 266). Changes in sales have an effect on a company’s net income. If sales increase so will the net income and vise versa. If there are changes in one of the components within the contribution ratio, the percentage would change as well. For example if HP’s contribution margin per unit is 800 dollars and we divide that by its unit selling

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