Essay: Increasing Profit through sales volume

Sample Essay

From the above calculation, we can see that an increase in sales volume will ultimately increase the profitability. The increase in sales volume is directly proportional to the increase in variable costs. Unit contribution margin is the difference between price and variable cost per unit[1].

Costs and contribution margin reflect the actual figures of Palm Inc’s financials. However, actual results may vary. The idea behind such analysis is to see in what proportion of sales the profit is maximized while making price changes. Further calculations in CVP analysis will give more projections on breakeven analysis, the margin of safety analysis etc. giving forecasted figures to make business more efficient and profitable.

Similarly, on a year-on-year basis, the prices would vary as per sales and costs requirements. For instance, considering the example, it is necessary for Palm Inc to increase its sales volumes which will ultimately generate revenues. So price determination is done through a basic CVP analysis as shown above. Keeping in view the performance of Palm Inc, as reflected from books, the sales should be maximized by increasing the productions and improving working capital management and the prices should be kept at a nominal level. More and more cost-effective measures should be taken to reduce variable costs as it is directly proportional to sales volume. The company should invest more on research and development but with an aim to provide the best to customers as the market is driven by technology and innovation while being less price sensitive.

[1][1] CVPA formula for profit is equal to = [(price – variable cost per unit)*sales volume in units] – fixed costs (Sprinkle, Sivaramakrishnan, Balakrishnan 2008).

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