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Discuss how CVP Analysis can be useful in profit planning. Discuss financial data prepared using variable...

Discuss how CVP Analysis can be useful in profit planning.

Discuss financial data prepared using variable costing method can help management in the development of short-run pricing policies.

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Discuss how CVP Analysis can be useful in profit planning

Answer: Cost-volume-profit (CVP) analysis refers to the study of the effects of changes in costs and volume on the profits of the company. It displays the relationship between the unit variable cost, fixed cost, selling prices, and quantity of sales. The analysis is vital in profit planning. CVP analysis assists managers to understand the relationship between cost, volume and profit; thus, it’s a vital tool in the decision-making process in an organization. It influences the management's decision when it comes to matters such as product selection mix, buy or make decisions, selecting the best distribution channel, the type of marketing strategy to be applied, what pricing policy to follow and the best method of production. Numerous different “what if” question can be asked to assess the effect of changes in key variables on profits

ekkarill92 answered 10 months ago
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