
Concept explainers
Define cost–volume–profit analysis.

Cost-Volume-Profit Analysis (CVP Analysis):
CVP Analysis is a tool of cost accounting that measures the effect of variation on operating profit and net income due to the variation in proportion of sales and product costs.
To explain: Cost-volume-profit analysis.
Answer to Problem 3.1Q
- CVP analysis evaluates the connection between total revenues, total costs and net income due to the variation in level of sales, sales price, variable and fixed costs of a unit.
- CVP analysis is based on breakeven point as it assist in evaluating the level of sales required to cover its costs and the point where firm can achieve its profit goal.
Explanation of Solution
- It helps to evaluate ideal mix of costs and volume in order to maximize the firm’s profit.
- It is a useful tool for management to evaluate the level of profit firm can achieve at different combination of costs and sales volume.
CVP analysis is a simple tool which helps management in taking timely decisions and also assists in forecasting profit levels at different levels of sales.
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Chapter 3 Solutions
Cost Accounting, Student Value Edition (15th Edition)
Additional Business Textbook Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Financial Accounting, Student Value Edition (5th Edition)
Business Essentials (12th Edition) (What's New in Intro to Business)
Horngren's Accounting (12th Edition)
Intermediate Accounting (2nd Edition)
Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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