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What is cost-volume-profit analysis?

What is cost-volume-profit analysis? Describe the use of break-even analysis and contribution margin analysis.

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CVP is the study of the effects of output volume on revenue (sales), expenses (costs), and net income (net profit). Hence it is a management accounting tool that expresses relationship between sales volume, cost and profit.
Thus it seeks to provide answers to the following questions:
1. What sales volume is necessary to produce an X amount of operating profit.
2. What will be the operating profit or loss at X sales volume be.
3. What will be the effect on operating profit be if the company's fixed costs have increased or sales mix have been changed.
4. What sales volume is needed to achieve the budgeted profit or to cover the additional fixed charges from the proposed new ...

Solution Summary

425 words describe the concept of a cost-volume-profit analysis and break-even/contribution margin analysis.

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