Cost Volume Profit analysis is a short term decision making tool used to assist managers in understanding the behavior of total costs, total revenues and operating income as changes occur in the output level, selling prices, variable cost or fixed costs.
Cost Volume Profit analysis is able to show the impact on the organization profit given different set of sensitivity in selling prices, costs, income tax rates, product mix and others.
Normally Cost Volume Profit analysis involve the Break-even Calculation.
It is important to understand the CVP analysis are based on the following key assumptions:
|
1. Fixed costs are constant over the output range |
|
2. It is possible to divide costs into fixed and variable elements |
|
3. Variable costs are directly proportional to volume |
|
4. All other variables remain constant. |
|
5. Profits are calculated on marginal-costing basis. |
|
6. All units produced are sold. |
Related posts:
- What Do We Mean By Operating Leverage And What Are The Implications Below article describes the meaning of operating leverage, some of...
- Balanced Scorecard Examples For Financial Perspectives Append below are some examples of the Customer Perspective KPI:-...
- What Are The Benefits Derived From Using Economic Value Added Analysis Some of the major advantages of using this economic value...
- Snapshots Of Articles On Economic Value Added(EVA) Analysis Economic Value Add(EVA) As A Financial Performance Metric...
Related posts brought to you by Yet Another Related Posts Plugin.