QuickBooks 2016 All-in-One For Dummies

Chapter 1

Profit-Volume-Cost Analysis

In This Chapter

• Understanding how profit-volume-cost analysis works
• Computing break-even points
• Performing profit-volume-cost analysis with real QuickBooks data
• Dealing with some minor conundrums
• Working with the Profit-Volume-Cost Analysis workbook

Profit-volume-cost analysis is a powerful tool that estimates how a business’s profits change as its sales volumes change, as well as break-even points. (A break-even point is the sales revenue level that produces zero profits.)

Profit-volume-cost analysis often produces surprising results. Typically, the analysis shows that small changes in a business’s sales volume produce big changes in profits.

Hotels and airlines are types of businesses that often see surprising fluctuations in their profits based on relatively modest changes in their sales revenue. Indeed, now that you know this, you’ll probably notice that investment analysts often use small changes in hotel occupancy and in airline load factors (the percentage of seats filled on a plane) to explain big changes in profits.

The first part of this chapter talks about the theory of profit-volume-cost analysis. Understanding the theory may be all you need in order to apply this tool to your specific setting. At the end of the chapter, I describe a Microsoft Excel workbook that you can use for more sophisticated profit-volume-cost analysis. ...