Question

How would you describe the cost-volume-profit analysis and its use in managerial planning?

Answer 1

Solution. When an organization decides to enter into a business, in order to meet its objectives and sustain, it needs to record and analyze financial statements for decision making purposes. Cost-volume-profit(CVP) analysis helps in determining the affect of varying levels of cost and volume of production on organization's profit.

Determination and analysis of cost-volume-profit facilitates an organization in decision making by rendering break even point value. It helps an organization in determining contribution earned by deducting variable costs of goods from sales amount. Such helps in distributing total fixed costs of the organization and reveals its profit earned during an accounting period. Managers need to make decisions based on such reports to decide on price, cost effective moves, etcetera.