Module 12 : Cost Volume Profit Analysis
Lecture 1 : Cost Volume Profit Analysis
 

Cost-Volume-Profit Analysis

CVP analysis:

  • Takes into account
    - the total costs (fixed and variable)
    - the total sales revenues
    - desired profits vis-a-vis the sales volume

It is used for forecasting or predicting how the changes in costs and sales volume affect profit. It is also known as 'Break-Even Analysis'.
CVP analysis could be helpful in the following situations:

Budget planning: for forecasting profit by considering cost and profit relation, and volume of production volume. This will help in determining the sales volume required to make a profit.
- To make decisions regarding pricing and sales volume.

Determining the sales mix of different products, in what proportions each of the products can be sold.
- Preparing flexible budget considering costs at different levels of production.