Question

In: Accounting

Provide examples of how cost–volume–profit analysis can be used for decision-making.

Provide examples of how cost–volume–profit analysis can be used for decision-making.

Solutions

Expert Solution

Cost-volume profit analysis represent the impact of change in cost to it's operating profit. It is also known as Break Even Analysis.

It helps to take decision that how much unit/sales need to do to make desired profit.

For example:

If a company sales it's each product at $10 and it's variable cost is $5 and fixed cost is $15,000. And company wants to know that how much unit they need to sale to earn $20,000 profit.

So in the above example

Contribution per unit = Sales - Variable cost

Contribution per unit = $10 - $5

Contribution per unit = $5

So the company have to sell to earn profit $20,000 will be

So by using the cost-volume profit analysis they can take decision that to earn $20000 profit whether they can sell 7000 unit or not if not then he can leave this project.

I hope this clear your doubt.

Feel free to comment if you still have any query or need something else. I'll help asap.

Do give a thumbs up if you find this helpful.


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