Cash, Volume And Profit Essay

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Cash, Volume, and Profit Brandy Colbert ACC/220 July 25, 2010 Penny Raterman Cash, Volume, and Profit Cost Volume Profit Analysis also known as CVP, is made up of several components and it is important to any company. By using cost volume profit analysis a company will be able to profit plan to get ready for future purchases or plans. Cost volume profit analysis will be able to determine the selling price of an individual item, how long it will take to produce the item and then how much revenue will be made from the item once it is sold. The basic components of cost volume profit analysis consist of: volume or level activity, unit selling prices, variable cost per unit, total fixed cost, and sales mix. By using all of these components a company will be able to get the most accurate results when planning for profit. Volume or level of activity will consist of how many of one item can be produced for sale. The higher the number of production means the higher revenue that can be brought into the company. Unit selling prices is the final amount of money a company is willing to set their costs at for a consumer to purchase the item. Some companies also offer bulk shipments, so the more a consumer agrees to buy the lower the price. Some times when a company if first selling an item they will have it priced higher since it will be new on the market, then after some time they cost of the same item will start to decrease in price. Variable cost per unit is determined by using the high low method. You can determine the variable cost per unit by taking the total cost of an item at the highest and the lowest level of activity. When you get one figure for both the highest and lowest then a company can then subtract them and the difference will give the company the variable cost of that item. Total fixed cost is the dollar amount of an item no matter

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