【A.02.00】What is Cost-Volume-Profit Analysis?

Briefing Note
Reading comprehension is a skill that empowers lifelong learning intelligence for a better self.
Cost-Volume-Profit analysis..

✅ ..also known as (CVP) in short.

✅ ..a tool used by businesses to understand the relationships between their costs, volume of production, and profits.

✅ ..a financial modeling technique that helps businesses make decisions about pricing, product mix, and cost control.


CVP analysis involves..

✅ ..calculating the break-even point, which is the point at which a business’s revenue equals its total costs.

✅ ..both “fixed costs” i.e. the costs that do not vary with the volume of production AND “variable costs” i.e. the costs that vary with the volume of production.


CVP analysis can be used..

✅ ..determine how changes in sales volume, prices, or costs will impact the business’s profitability after the break-even point has been calculated.


In other words..

✅ ..a business can use CVP analysis to determine how many units it basically needs to sell in order to earn a profit, or how much it needs to increase its prices to achieve a certain level of profit.


CVP analysis is essentially useful..

✅ ..for businesses of all sizes and industries, as it helps businesses make informed decisions about their pricing, cost control, and overall profitability.


By understanding..

✅ ..the relationships between costs, volume of production, and profits, businesses can make better decisions about their operations and improve their financial performance.


Here is the video for dynamic comprehension..

Here is the briefing note for reading comprehension..