Cost Management: Measuring, Monitoring, and Motivating Performance, 2nd Edition

CHAPTER 3

Cost-Volume-Profit Analysis

In Brief

Managers need to estimate future revenues, costs, and profits to help plan and monitor operations. They use cost-volume-profit (CVP) analysis to identify the levels of operating activity needed to avoid losses, achieve targeted profits, plan future operations, and monitor organizational performance. Managers also analyze operational risk as they choose an appropriate cost structure.

This Chapter Addresses the Following Questions:

• Q1 What is cost-volume-profit (CVP) analysis, and how is it used for decision making?
• Q2 How are CVP calculations performed for a single product?
• Q3 How are CVP calculations performed for multiple products?
• Q4 What assumptions and limitations should managers consider when using CVP analysis?
• Q5 How are margin of safety and operating leverage used to assess operational risk?

WIRED OR WIRELESS: ADJUSTING TO NEW MARKETS

Voice over Internet Protocol, also called VoIP, converts voice into a digital signal that travels over the Internet. When calling a regular phone number, the signal is converted to a regular telephone signal before it reaches the destination. VoIP allows calls directly from a computer, a special VoIP phone, or a traditional phone connected to a special adapter. VoIP can be used with wireless connections anywhere around the world.

Many companies are beginning to offer VoIP services. Some VoIP ...