Question

Please identify and share an opportunity where CVP analysis could prove useful at your place of work or in your personal life.​

Answer 1

A CVP analysis is a method to calculate the contribution profit margin of each product at a specific level of sales and variable costs. It can determine the breakeven points in terms of units produced and sales volume at any price point.
Every organization needs to calculate future revenues in order to help the managers carry out their operations effectively. Cost volume is the approach used for this purpose. Cost Volume Profit analysis or CVP analysis helps in identifying the operating activity levels with a purpose to avoid any kind of losses and achieve profits. Moreover, it also helps the companies to plan their future operations and see whether their organizational performance is going on the right track or not.
It helps to analyze which products and services are beneficial and how can company use these products and services to generate the maximum amount of revenue.
It also explains what sales volume will be needed by the company in order to achieve a fixed level of profits.
It also helps to calculate company’s fixed costs and measure the amount of risk associated with any investment
Another benefit that companies gain by using the CVP approach is the operating leverage benefit which explains how the cost structure of an organization is made up of fixed cost processes.