Definition of Volume

Volume

This is the daily number of shares of a security that change hands between a buyer and a seller.

Price-volume relationship

A relationship espoused by some technical analysts that signals continuing rises
and falls in security prices based on accompanying changes in volume traded.

Allocation base A measure of activity or volume such as labour

hours, machine hours or volume of production
used to apportion overheads to products and
services.

Cost–volume–profit analysis (CVP)

A method for understanding the relationship between revenue, cost and sales volume.

cost-volume-profit (CVP)

analysis a procedure that examines
changes in costs and volume levels and the resulting
effects on net income (profits)

fixed overhead volume variance

see volume variance

profit-volume graph

a visual representation of the amount
of profit or loss associated with each level of sales

volume variance

a fixed overhead variance that represents
the difference between budgeted fixed overhead and fixed
overhead applied to production of the period; is also referred
to as the noncontrollable variance

Arms index

Also known as a trading index (TRIN)= (number of advancing issues)/ (number of declining
issues) (Total up volume )/ (total down volume). An advance/decline market indicator. Less than 1.0 indicates
bullish demand, while above 1.0 is bearish. The index often is smoothed with a simple moving average.

J-curve

Theory that says a country's trade deficit will initially worsen after its currency depreciates because
higher prices on foreign imports will more than offset the reduced volume of imports in the short-run.

Multirule system

A technical trading strategy that combines mechanical rules, such as the CRISMA
(cumulative volume, relative strength, moving average) Trading System of Pruitt and White.

Noise

Price and volume fluctuations that can confuse interpretation of market direction.

Pivot

Price level established as being significant by market's failure to penetrate or as being significant when
a sudden increase in volume accompanies the move through the price level.

Thin market

A market in which trading volume is low and in which consequently bid and asked quotes are
wide and the liquidity of the instrument traded is low.

Tight market

A tight market, as opposed to a thin market, is one in which volume is large, trading is active
and highly competitive, and spreads between bid and ask prices are narrow.

Turnover

Mutual Funds: A measure of trading activity during the previous year, expressed as a percentage of
the average total assets of the fund. A turnover ratio of 25% means that the value of trades represented onefourth
of the assets of the fund. Finance: The number of times a given asset, such as inventory, is replaced
during the accounting period, usually a year. Corporate: The ratio of annual sales to net worth, representing
the extent to which a company can growth without outside capital. Markets: The volume of shares traded as a
percent of total shares listed during a specified period, usually a day or a year. Great Britain: total revenue.

Variable cost

A cost that is directly proportional to the volume of output produced. When production is zero,
the variable cost is equal to zero.

Capacity

The maximum volume of products or services that can be produced given limitations of space,
people, equipment or financial resources.

Cost behaviour

The idea that fixed costs and variable costs react differently to changes in the volume of
products/services produced.

Fixed costs

Costs that do not change with increases or decreases in the volume of goods or services
produced, within the relevant range.

Flexible budget

A method of budgetary control that flexes, i.e. adjusts the original budget by applying standard
prices and costs per unit to the actual production volume.

Overhead allocation

The process of spreading production overhead equitably over the volume of production of goods or services.

Sensitivity analysis

An approach to understanding how changes in one variable of cost–volume–profit analysis are affected by changes in the other variables.

Variable cost

A cost that increases or decreases in proportion with increases or decreases in the volume of production of goods or services.

breakeven point

The annual sales volume level at which total contribution
margin equals total annual fixed expenses. The breakeven point is only a
point of reference, not the goal of a business, of course. It is computed by
dividing total fixed expenses by unit margin. The breakeven point is
quite useful in analyzing profit behavior and operating leverage. Also, it
gives manager a good point of reference for setting sales goals and
understanding the consequences of incurring fixed costs for a period.

contribution margin

An intermediate measure of profit equal to sales revenue
minus cost-of-goods-sold expense and minus variable operating
expenses—but before fixed operating expenses are deducted. Profit at
this point contributes toward covering fixed operating expenses and
toward interest and income tax expenses. The breakeven point is the
sales volume at which contribution margin just equals total fixed
expenses.

fixed expenses (costs)

Expenses or costs that remain the same in amount,
or fixed, over the short run and do not vary with changes in sales volume
or sales revenue or other measures of business activity. Over the
longer run, however, these costs increase or decrease as the business
grows or declines. Fixed operating costs provide capacity to carry on
operations and make sales. Fixed manufacturing overhead costs provide
production capacity. Fixed expenses are a key pivot point for the analysis
of profit behavior, especially for determining the breakeven point and for
analyzing strategies to improve profit performance.

operating leverage

A relatively small percent increase or decrease in
sales volume that causes a much larger percent increase or decrease in
profit because fixed expenses do not change with small changes in sales
volume. Sales volume changes have a lever effect on profit. This effect
should be called sales volume leverage, but in practice it is called operating
leverage.
operating liabilities
The short-term liabilities generated by the operating
(profit-making) activities of a business. Most businesses have three types
of operating liabilities: accounts payable from inventory purchases and
from incurring expenses, accrued expenses payable for unpaid expenses,
and income tax payable. These short-term liabilities of a business are
non-interest-bearing, although if not paid on time a business may be
assessed a late-payment penalty that is in the nature of an interest
charge.

unit-driven expenses

Expenses that vary in close proportion to changes
in total sales volume (total quantities of sales). Examples of these types of
expenses are delivery costs, packaging costs, and other costs that depend
mainly on the number of products sold or the number of customers
served. These expenses are one of the key factors in a profit model for
decision-making analysis. Segregating these expenses from other types
of expenses that behave differently is essential for management decisionmaking
analysis. The cost-of-goods-sold expense depends on sales volume
and is a unit-driven expense. But product cost (i.e., the cost of
goods sold) is such a dominant expense that it is treated separately from
other unit-driven operating expenses.

variable expenses

Expenses that change with changes in either sales volume
or sales revenue, in contrast to fixed expenses that remain the same
over the short run and do not fluctuate in response to changes in sales
volume or sales revenue. See also revenue-driven expenses and unitdriven
expenses.

accretion

an increase in units or volume caused by the addition
of material or by factors inherent in the production process

capacity

a measure of production volume or some other activity base

CVP

see cost-volume-profit analysis

noncontrollable variance

the fixed overhead volume variance;
it is computed as part of the two-variance approach to overhead analysis

normal capacity

the long-run (5–10 years) average production
or service volume of a firm; it takes into consideration
cyclical and seasonal fluctuations

Pareto analysis

a method of ranking the causes of variation
in a process according to the impact on an objective
Pareto inventory analysis an analysis that separates inventory
into three groups based on annual cost-to-volume usage

practical capacity

the physical production or service volume that a firm could achieve during normal working hours with consideration given to ongoing, expected operating interruptions

predetermined overhead rate

an estimated constant charge per unit of activity used to assign overhead cost to production or services of the period; it is calculated by dividing total budgeted annual overhead at a selected level of volume or activity by that selected measure of volume or activity; it is also the standard overhead application rate

theoretical capacity

the estimated maximum production or
service volume that a firm could achieve during a period

Marginal cost

The incremental change in the unit cost of a product as a result of a
change in the volume of its production.

ABC inventory classification

A method for dividing inventory into classifications,
either by transaction volume or cost. Typically, category A includes that 20% of
inventory involving 60% of all costs or transactions, while category B includes
the next 20% of inventory involving 20% of all costs or transactions, and category
C includes the remaining 60% of inventory involving 20% of all costs or
transactions.

Bottleneck

A resource whose capacity is unable to match or exceed that of the demand
volume required of it.

Item master file

A file containing all item-specific information about a component,
such as its weight, cubic volume, and unit of measure.

Mass customization

High-volume production runs of a product, while still offering
high variability in the end product offered to customers.

Break-Even Analysis

An analytical technique for studying the relationships between fixed cost, variable cost, and profits. A breakeven chart graphically depicts the nature of breakeven analysis. The breakeven point represents the volume of sales at which total costs equal total revenues (that is, profits equal zero).

Fixed Expenses

Cost of doing business which does not change with the volume of business. Examples might be rent for business premises, insurance payments, heat and light.

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