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Accounting For Managers - Management Accounting-Cost Volume Profit Analysis

Meaning of Cost-Volume-Profit Analysis

   Posted On :  03.05.2018 09:49 pm

Cost-volume-profit (CVP) analysis focuses on the way cost and profit change when volume changes.

Meaning of Cost-Volume-Profit Analysis

Cost-volume-profit (CVP) analysis focuses on the way cost and profit change when volume changes. It is, broadly speaking, that system of analysis which determines the probable profit at any level of activity. This technique is generally used to analyse the incremental effect of volume on costs, revenues and profits. At what volume of operations are costs and revenues equal? What volume of output or sales would be necessary to earn a profit of say rs.2 lakhs? How much profit will be earned at a volume of, say 10,000 units? What will happen if there is a reduction of 10 percent in the selling price? Questions like these are sought to be answered through cvp analysis. This detailed analysis will help the management to know the profit levels at different activity levels of production and sales and various types of costs involved in it.

 

Tags : Accounting For Managers - Management Accounting-Cost Volume Profit Analysis
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