ECON1013 Lecture Notes - Lecture 1: Sensitivity Analysis, Net Profit, Lead Generation
Document Summary
General case: the most detailed way of predicting total revenues and total costs is to consider multiple revenue drivers and multiple cost drivers. The term cvp analysis is widely used as representing the special case where a single revenue and cost driver are used. Our restriction to units of output as the sole revenue or cost driver is important to keep in mind. It means that in the cvp model, changes in the level of revenues and costs arise only because the output level changes. We assume that: total costs=variable costs+fixed costs operating profit: total revenues from operations minus total costs from operations (excluding income taxes) Net profit: operating profit plus non-operating revenues (such as interest revenue) minus non- operating costs (such as interest cost) minus income taxes. Usp=unit selling price; uvc=unit variable cost; ucm=unit contribution margin (usp-uvc); Fc=fixed costs; q=quantity of output units sold (or manufactured); op=operating profit;
