Question
In: Accounting
Is CVP a tool that can only be used for companies that sell a single product?...
Is CVP a tool that can only be used for companies that sell a single product? Support your view.
Solutions
Expert Solution
No, CVP is not a tool that can only be used for companies that sell a sell a single product but it can be apply on multiple products also. It is very difficult for the companies who sells multiple products to apply CVP approach.
CVP analysis is used to determine the profitability of the company. It cut down cost into different parts: variable and fixed cost.
Company who sells multiple products need to maintain the selling price and variable cost equals of all the products. Different products have different selling price per unit and cost per unit. The theory of product mix can apply to obtain the profitability of the company.
1. You need to know about the quantity or volume of different products that company sells which is helpful to determine the ratio of profitability of different product.
2. Then calculate contribution margin of different products and apply weighted average contribution margin which helps the company to reach the desired profit.
ekkarill92 answered 1 year agoRelated Solutions
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company and describe how you envision that company using CVP
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addressed by your classmates. Consider using an article to
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