Transcription of Cost–Volume–Profit Analysis
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Cost–Volume–Profit Analysis
How The Biggest Rock Show Ever Turned a Big Profit 1 On its recent tour across North America, Europe, and Asia, the rock band U2 performed on an imposing 164-foot-high stage that resembled a spaceship, complete with a massive video screen and footbridges leading to ringed catwalks. U2 used three separate stages each one costing nearly $40 million. Additional expenses for the tour were $750,000 daily. As a result, the tour s suc-cess depended not only on the quality of each night s concert but also on recouping its tremendous fixed costs costs that did not change with the number of fans in the audience. To cover its high fixed costs and make a profit, U2 needed to sell a lot of tickets.
Cost–volume–profit (CVP) analysis is a model to analyze the behaviour of net income in response to changes in total revenue, total costs, or both. In reality, businesses oper-ate in a complex environment; a model reduces that complexity by using simplifying assumptions to focus on only the relevant relationships. The most important elements in
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