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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