1. What is meant by CVP analysis? 2. Provide three examples of management decisions that benefit...

1. What is meant by CVP analysis?

2. Provide three examples of management decisions that benefit from CVP analysis.

Expert Solution

COST - VOLUME - PROFIT (CVP) ANALYSIS

1) It is a managerial tool showing the relationship between various ingredients of profit planning through cost, selling price and volume of activity. Cost Volume Profit (CVP) Analysis is the analysis of three variables cost, volume and profit. Such an analysis explores the relationship between cost, revenue, activity levels and the resulting profit. It aims at measuring variations in cost and volume. It provides the information about the behaviour of cost in relation to volume, sensitivity of profits due to variation in output, amount of profit for a projected sales volume, quantity of production and sales for a target profit level.

2) Management get benefits by using CVP analysis in Budgeting, Decision making and Profit planning . It elucidates the impact of the following on the net profit :

Changes in selling prices,
Changes in volume of sales,
Changes in variable cost,
Changes in fixed cost.

ekkarill92 answered 2 years ago

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