Explore BrainMass

Cost-Volume-Profit Analysis and Operating Leverage

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

What are the aims, usefulness, and shortcomings of the following:
a) cost-volume-profit analysis
b) the concept of operating leverage

© BrainMass Inc. brainmass.com October 17, 2018, 11:08 am ad1c9bdddf

Solution Preview

CVP analysis attempts to identify revenue and cost factors in order to gain an idea of when and where profit will be incurred. It begins with the basic formula of PROFIT = Revenue - Costs. Taken a step further, it delineates costs into two categories, fixed and variable costs. Fixed costs are incurred if we sell a million units or no units --- they will happen as a result of opening our doors for the conduct of business.

Fixed costs + Variable Costs = Total Costs. At the point where total costs = the revenue from sales, we have established a ...

Solution Summary

These questions provide insight into the relationship between profitability and the use of financial leverage.

Similar Posting

Fixed and variable costs : explained

Can you help me get started with this assignment?

What are some examples of fixed and variable costs from your workplace? Which costs may have both variable and fixed components? How can this be resolved for analysis purposes?

What is the definition of operating leverage? How does operating leverage differ in manufacturing, service, merchandising, and e-commerce companies? How can operating leverage be used to increase a company's profitability? How do the four categories of ratios combine to give a full picture of a company's health?

View Full Posting Details