Cost-Volume Profit Analysis
Categories: Accounting, Metrics, Company Management
This practice is used in accounting to examine how profit will be affected by a company’s sales volume and costs.
How will the purchase of this Gucci bag affect the cash we have this month to pay our bills? We could look at our sales volume as our salary, and our costs as our bills. We're working with what comes in from our salary and actually...stays in. Then we decide what costs are “appropriate,” and whether those costs will affect the money we need to save in such a negative way that we must reevaluate. Sometimes this will mean missing the On the Run tour even after you’ve perfected your Queen B dance.
Of course, a formal cost-volume profit analysis is much more in depth, and even typically involves a fancy and exciting (to an accountant) economic graph.