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Meaning of Cost-Volume-Profit Analysis

Cost-volume-profit (CVP) analysis focuses on the way cost and profit change when volume changes. It is, broadly speaking, that system of analysis which determines the probable profit at any level of activity. This technique is generally used to analyze the incremental effect of volume on costs, revenues, and profits. At what volume of operations are costs and revenues equal? What volume of output or sales would be necessary to earn a profit of saying TZS 1000,000? How much profit will be earned at a volume of, say 10,000 units? What will happen if there is a reduction of 10 percent in the selling price? Questions like these are sought to be answered through CVP analysis. This detailed analysis will help the management to know the profit levels at different activity levels of production and sales and various types of costs involved in it.




6 thoughts on “Meaning of Cost-Volume-Profit Analysis”

  1. Pingback: Limitation of cost volume profit (CVP) analysis – ACCOUNTING CLASS

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