Answered: Discuss the basic assumptions of CVP…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Discuss the basic assumptions of CVP analysis and how can we use CVP analysis in making decisions in a not-for-profit organization, as well as a for-profit organization?

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Step 1: WHAT IS CVP

CVP stands for Cost-Volume-Profit Analysis. It is a financial management and accounting tool used to analyze the relationships between costs, volume (or level of activity), and profit in a business or organization. CVP analysis is also known as break-even analysis because it helps in identifying the level of sales or activity at which a business neither makes a profit nor incurs a loss (the break-even point).

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