Cost-volume-profit relationships need to be understood by managers whether who have financial or non financial knowledge. This is because the cost-volume-profit relationship helps manager to make decision. It helps them to understand the interrelation between, cost, volume and profit in an organizatin by focusing interactions among the following elements:
- Price of the product
- Volume or level of activity
- Per unit variable cost
- Total fixed cost
- Mix of product sold
The aforesaid elements would provide the managers the following answers:
- what product to manufacture or sell
- what pricing to follow
- what marketing strategy to employ
- what type of productive facilities to acquire
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