Cost, Volume, and Profit FormulasCost-volume-profit (CVP) analysis is based on five components and the interrelationships found between them. The five components consist of volume or level of activity, unit selling prices, variable cost per unit, total fixed costs, and sales mix.
The volume or level of activity is the activity that causes changes in the behavior of cost. The changes should be correlated with changes in cost. For instance, Hewlett Packard (HP) provides company cars to many of its sales professionals, the miles driven cause change in the behavior of costs.
The unit selling price is linked directly to profit and includes all costs and expenses pertaining to production and sale of the product. Having the appropriate debt-equity mix is very important to the financial success of any business. One must give careful consideration to the mix of debt and equity capital which your organization is to have. Although debt finance is cheaper, obtaining such finance depends on your ability to repay. It may also require significant security. One must also ensure that your organization is not too leveraged (i.e., the ratio of debt to equity is not too high).
I recently completed a simulation exercise for FIN/325 titled Determining the Debt-Equity Mix. During the simulation I was given the role of owner of a coffee shop and was taken through the various stages of the evolving business. The financial market is an area that can be very rewarding or downright frightening. Investors have their work cut out for them when trying to choose the right company to invest in. With previous accounting scandals related to Enron, investors have to be very careful when investing their money. This is where federal agencies such as the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) can help. The SEC and the CFTC try to protect investors from fraud and abusive trade practices. There are also self â€“regulatory organizations...