Question

When you're figuring the CVP in a single product setting then do you use the total sales for all years or just one year and if it doesn't tell you then how do you know

Answer 1

CVP analysis is used to determine how changes in costs and volume affect a company's operating income and net income.

The Components of CVP Analysis are per unit Sales price, Per unit Variable cost, Fixed costs and the Activity level.

When identifying cost behavior patterns, we assume that management is using the cost information to make short-term decisions. Variable and fixed cost concepts are useful for short-term decision making. The short-term period varies, depending on a company’s current production capacity and the time required to change capacity.

Thus the The relevant range is the range of activity for which cost behavior patterns are likely to be accurate. The variable, fixed, and mixed costs identified will only be accurate within a certain range of activity.

Thus one year sales and cost patterns should be used, instead of all years of sales for CVP analysis in a single product setting.