COMMERCE 2AB3 Study Guide - Final Guide: Relative Risk, Weighted Arithmetic Mean, Contribution Margin

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 2AB3
• Professor: Aadil Merali Juma

Document Summary

The cost-volume-profit model examines the relationship between firm cost structure (i. e. , relative proportion of fixed and variable costs) and sales volume and the effects of this relationship on the profitability of a firm. The model can be used by managers for the purposes of planning and decision making. This basic model combines four important variables volume of sales, costs, revenue, and profits. The basic model can be extended to assess the impact of price, cost, and volume changes, along with changes in product mix and income taxes. Should we produce more of product a and less of product b or vice versa? (cid:120) (cid:120) Mathematical solution graphical solution (cid:120) effect of income tax (cid:120) sensitivity analysis (cid:120) operating leverage (cid:120) margin of safety (cid:120) mathematical solution. It is important to note that the cvp analysis is performed at the firm wide level.