What is CVP analysis? Does it differ from break even analysis? How is break-even point calculated?

                                                                                                                                         

MBA

Accounting for Managers

ASSIGNMENT

 

Course Code: MMPC-004

Assignment Code: MMPC-004/TMA/JULY/2022 

Coverage : All Blocks

3. What is CVP analysis? Does it differ from break even analysis? How is break-even point calculated?

CVP analysis is a powerful financial modelling technique that enables managers to understand how changes in sales volume, costs, and selling price impact a company's profitability. The primary focus of CVP analysis is to understand the relationship between sales volume, costs, and profit. By understanding this relationship, managers can make more informed decisions regarding pricing, product mix, and resource allocation. The basic components of CVP analysis are fixed costs, variable costs, selling price, and volume of sales. 

Fixed costs are costs that do not change with changes in sales volume, such as rent, salaries, and insurance. Variable costs, on the other hand, are costs that vary with changes in sales volume, such as raw materials, direct labor, and sales commissions. Selling price is the price at which the product or service is sold, and volume of sales is the number of units sold.

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