Cost-Volume-Profit (CVP) Analysis
Understanding the Relationship Between Cost, Volume, and Profit
Cost-Volume-Profit (CVP) analysis examines how changes in sales volume, selling price, variable costs, and fixed costs affect profitability. It helps managers evaluate business scenarios and make informed operational decisions.
- Analyze profit sensitivity.
- Estimate break-even sales.
- Evaluate pricing decisions.
- Measure impact of cost changes.
- Support strategic planning.
Note
CVP analysis assumes costs behave consistently within the relevant range and that the sales mix remains constant.
Summary
CVP analysis helps managers understand how operational decisions influence profitability.