CVP analysis
Cost-volume-profit analysis (CVP), or breakeven analysis, is used to compute the volume level at which total revenues are equal to total costs .
When total costs and total revenues are equal, the business organization is said to be “breaking even”. The analysis is based on a set of linear equations for a straight line and the separation of variable and fixed costs. The financial information required for CVP analysis is for internal use and is usually available only to managers inside the firm; information about variable and fixed costs is not available to the general public .
Cost-volume-profit (CVP) analysis, or breakeven analysis, is an important technique, for the planning, management, and control of an organization’s operations. When it comes to planning, CVP analysis investigates the impact of a product or product mix on alternative courses of action that an organization may undertake to increase profits. In day-to-day management of operating activities, CVP analysis facilitates decision-making. From a control perspective, CVP analysis uncovers the weaknesses and strengths of products and product groups and processes. The CVP model formalizes profit planning by analyzing the behavior of net income based on changes in a host of variables related to revenues, total costs, or both. A set of simplifying assumptions allows an organization to reduce the complexity of the business environment in which the organization typically operates and to focus on the relationships among revenues, total cost, and profit .
⠀ When total costs and total revenues are equal, the business organization is said to be “breaking even”. The analysis is based on a set of linear equations for a straight line and the separation of variable and fixed costs. The financial information requir