Cost–Volume–Profit (CVP) Analysis
Introduction to Cost–Volume–Profit (CVP) Analysis Definition Cost–Volume–Profit (CVP) Analysis is a managerial accounting technique used to study the relationship between costs , sales volume , and profit . It helps management understand how changes in cost structure, selling price, and output level affect a firm’s profit. In simple words, CVP analysis answers three basic questions: · How much should we sell to avoid loss? · How much should we sell to earn a target profit? · How will profit change if costs, price, or volume change? 2. Objectives of CVP Analysis The main objectives of CVP analysis are: · To determine the break-even point (BEP) · To calculate profit or loss at different levels of output · ...