Ch 3 Complete - Cost-Volume-Profit Analysis

School: University of Notre Dame - Course: COST ACCOU 123 - Subject: Accounting

Cost-Volume-Profit Analysis

Essentials of CVP Analysis • What is Cost Volume Profit (Alias: CVP)? • Analysis tool that managers use to understand how profits will change as units sold, variable costs, fixed costs, selling price,or some combination of these, change •Relationship among these elements • What is it useful for? • To figure out how profits will change as the units sold of a product or service changes • To use "what-if" this happens analysis to examine the possible outcomes of different decisions so you can make an informed decision... like what? • Limitless - increase/decrease price? Advertise? Product mix? Change operating leverage? Etc. • In Excel, data can easily be changed to see how profitability will change when there are multiple changes within costs, selling price, and units sold • Be realistic in the analysis: • If you increase sales price... • More than likely units sold will decrease