Question

Cost-volume-profit (CVP) analysis is a planning tool that examines the relationship among costs and how they affect profits or losses. Cost-volume-profit analysis is also referred to as cost-volume-price analysis because changes in sales prices also affect profits or losses. The CVP assumptions are: The price per unit does not change as volume changes. Managers can classify costs as variable, fixed, or mixed. The only factor that affects total costs is change in volume, which increases or decreases variable and mixed costs. Fixed costs do not change. There are no changes in inventory levels. Thoughts?

Answer 1

Note: As no question was posted to be answered to this given paragraph I'm assuming that it needed my opinion on the above and hence giving the answer based on my assumption.

The above given paragraph is a true reflection of the CVP analysis.

CVP analysis is a very good tool which helps the management in budgeting and profit planning. It also explains vhow various situations like change in sales volume, change in fixed and variable costs , change in selling price affects the net profit.

As it is based on cause and effect relationship between cost, volume, pricing and profits it is useful to the management to do an effective job.

For instance, profit depends upon sales, selling price depends mainly upon costs and costs depends upon the volume of production as it is the variable cost that varies directly with production.

Hence the above given paragraph is justified.