Explain single product cost-volume-profit (CVP) and break-even analysis. Provide a hypothetical example of CVP and breakeven analysis. Provide in-text citations and explain your example in detail.
Explain single product cost-volume-profit (CVP) and break-even analysis. Provide a
hypothetical example of CVP and breakeven analysis. Provide in-text citations and
explain your example in detail.
COST - VOLUME - PROFIT (CVP) ANALYSIS
CVP analysis looks at the effect of sales volume variations on costs and operating profit. The analysis is based on the classification of expenses as variable or fixed. Accordingly, operating income is defined as:
Operating Income = Sales - Variable Costs - Fixed costs
A CVP analysis is used to determined the sales volume required to achieve a specified profit level. Therefore, the analysis reveals the break-even-point where the sales volume yields a net operating income of zero and the sales cutoff amount that generates the first dollar of profit .
Cost-volume profit analysis is an essential tool used to guide managerial , financial and investment decisions.
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