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Which variable explains the fall in profit?

Quick lesson1 min read

When sales and costs change at the same time, start by isolating one change and add the others afterwards. This avoids blaming the whole change on the most eye-catching factor.

An example with numbers

You sell 100 units at $40 with a $25 variable cost. Contribution is $1,500. If the cost rises to $27, it falls to $1,300. If you also sell only 90 units, it ends at $1,170. In that order, $200 of the fall comes from cost and $130 from volume.

Try it with your numbers

Build the three scenarios with the same fixed costs. Note the order you used: when factors interact, how the difference is split depends on that order.

Open the calculator

Example figures for learning purposes. They are not a recommendation and do not replace professional advice.

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