How do companies use CVP analysis information in decision making?

Expert Solution

The companies use CVP analysis information in decision making in various ways:

Profitability planning : The CVP analysis helps the company to come out with a profitable combination of various products.
Various decision based on CVP : The company has to take various decisions like make or buy, best channel of distribution, marketing strategy to adopt, what pricing policy should be, so on.
Price defining: The managers uses the CVP analysis to define the price of the products which will provide maximum sale quantity alongwith maximum profitable price of the products.
Control over costs: Through the use of CVP analysis, effective control on the costs are maintained so that the changes in the volume will reflect the profit increase with volume.
Budgetary sales level : Through the use of CVP analysis, the company reaches out at the most profitable level of sales. It helps to frame the flexibility budgets with various combinations of price, costs and revenue levels.

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ekkarill92 answered 1 year ago

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