1

Profit-Cost-Volume Relationship

Cost-volume-profit (CVP ) Adenji (2008) analysis is one of the most broadly used tools in

management accounting, which assists multiple purposes both internally (such as deciding

alternative sales outlines, budgeting, and performance evaluation) and externally (such as

earnings forecasts conditional on sales forecasts by investors and analysts). The (CVP)

relationship is based on the standard model of fixed and variable costs, which means a linear

relationship between sales and costs, and for, between sales and earnings.

In The Uncertainty Conditions Cost-Volume-Profit Analysis

Uncertainty in the markets and global instability are pushing companies to plan for the future

and act quickly. Profit planning plays an important role in fulfilling their primary goal of

making a profit". Profit planning requires determining the factors affecting the benefits and

the coordination between them. Cost-Volume-Benefit, Analysis (CVP), aims to determine the

effects of the factors required for for-profit planning on profit. Cost-volume-Profit, analysis is

an analysis that companies use in the decision-making process.

Cost-Volume-Profit Analysis in decision making

The cost-volume-profit is a necessary tool for planning also for management control. The

method includes several techniques and problem-solving methods based on understanding

patterns of changing business cost characteristics. The techniques express the relationship

between revenue, sales structure, costs, production volume, and profits, and include break-

even analysis and profit forecasting processes. This relationship provides a general model of

economic activity, which management can use for short-term forecasting to assess business

performance and analyze decision alternatives. The marginal contribution is the difference

between total revenue and total variable costs and explains how operating profit changes

depending on the number of units sold.

 2

Why is Profit-cost-volume important in planning?

To be successful in the global competitive environment, business is required to maintain their

activities and plan. Profit planning is the most important management tool since the main

target to make a profit. The cost system, which is used, should provide information for the

concerning people about the aspects, such as unproductive parts, profitless products, and

determining the activities and products whose expenses are high, but incomes are very low.

Activity-based costing is becoming a tool helping business management by supplying more

detailed information as well as an effort to determine more accurately the product costs.

However, activity-based costing is examined because it is found complex and application is

difficult.
 3

REFERENCES

Kirlioğlu, H., & Baral, G. (2012). In The Uncertainty Conditions Cost-Volume-Profit Anlysis Which is
Used Fuzzy Logic. In International Symposium on Sustainable Development, winter.

Magee, R. P. (1975). Cost-volume-profit analysis, uncertainty and capital market equilibrium. Journal
of Accounting Research, 257-266.