The Portable MBA in Finance and Accounting, 3rd Edition
Cost-Volume -Profit Analysis 125
- To compute the slope, find a point that the line intersects and then measure
the “rise-over-run” using the y-axis intercept and that point. For this calculation my
line intersected the June data at point ($13,500, $15,500) so my rise was $11,500
($4,000 to $15,500 in Total Cost) and my run was $13,500 ($0 to $13,500 in Revenue).
The slope, therefore, was $11,500/$13,500 or 85.2%.
- To avoid this shortcoming, many analysts first plot the data and then select
high and low data points that “best fit” the data set. This technique is a melding of
the first two databased techniques discussed.
- For instance, Excel has a function that will perform a simple least-squares
regression on a given data set. Other regression techniques that relax the linear fit as-
sumption are also available on many statistical software packages.
- For instance, infrastructure may have been expanded over the period
the data set covers. The regression software will assume a constant fixed cost rather
than some type of step function unless other wise told. This can be treated using
dummy variables, but the user needs to have a working knowledge of the statistical
technique.
- The final two sections of this chapter were written by John Leslie Living-
stone for earlier editions of this book. They are reproduced here in their entirety.
