Question

8. What are 3 ways in that CVP analysis can be used by managers to make decisions?

Answer 1

Answer : Cost-volume-profit analysis

Cost-volume-profit analysis, or CVP, is something companies use to figure out how changes in costs and volume affect their operating expenses and net income. CVP works by comparing different relationships, such as the cost of operating and producing goods, the amount of goods sold, and profits generated from the sale of those goods. By breaking down costs into fixed versus variable, CVP analysis gives companies strong insight into the profitability of their products or services.

The three ways in CVP analysis that can be used by managers to make decisions are as follows -

1. Cost, which means the expenses involved in producing or selling a product or service.
2. Volume, which means the number of units produced in the case of a physical product, or the amount of service sold.
3. Profit, which means the difference between the selling price of a product or service minus the cost to produce or provide it.