USE OF THE COST/VOLUME/PROFIT ANALYSIS TO ESTIMATE EARNINGS
USE OF THE COST/VOLUME/PROFIT ANALYSIS TO ESTIMATE EARNINGS

Summary/Abstract: Given the existing risks and competition conditions, company management needs management accounting, which is a component of the company’s accounting system and is designed solely to help managers in the decision-making process. Due to the diversification of the production and sale activities, there has become imperative, from the viewpoint of company organization, operation, equipment and even earnings and costs, an alternative to the full costing method. This is the direct costing method employed to calculate costs, which is based on those costs that are closely and directly connected to the operation volume. This method is actually more than a cost calculation method; it is a short-term earnings calculation method, which makes these costs a useful company management tool. This paper is designed to explain, by means of concrete examples, the way in which operation conditions changes influence the earnings estimated by means of the cost-volume-profit analysis, as well as the implications of these changes on the decisions to make.

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