Cost-Volume-Profit (CVP) Analysis
                     Cost-Volume-Profit 
(CVP) Analysis
Introduction
A cost-volume-profit (CVP) analysis, also commonly known 
as the break-even analysis, is one of the common methods of 
cost accounting used to determine how variance in sales 
volume and costs impact a company's profit. 
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CVP analysis
A CVP analysis requires the use of numerous equations for 
pricing, cost and a few other variables that professionals 
present on a graph. This may help them understand how to 
improve their performance.
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Break-even sales volume
In this formula, "FC" represents fixed costs, and "CM" 
represents the contribution margin per unit. To find the 
contribution margin per unit, you subtract all variable costs 
from sales revenue. 
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Assumptions 
● The sales price per unit doesn't change.
● Variable costs per unit don't change.
● Total fixed costs are constant.
● The company assumes that it's sold all the units it's 
produced.
● Changes in expenses occur because of changes in 
activity level.
● If a company sells more than one product, it sells them 
in the same mix.
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Components of CVP analysis
Fixed Costs 
These are the costs that don't fluctuate with sales or product 
production changes. Examples of fixed costs include rent and 
advertising.
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Variable Costs 
These are the costs that change as the quantity of products 
changes. Examples of variable costs include raw materials 
and direct labor.
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Contribution Margin
This is the difference between the total variable costs and a 
company's total revenue.
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Break Even Point
This is when the total costs and revenue are equal, meaning 
the business is neither making a loss nor a profit.
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Advantages of using CVP Analysis
1. Helps save time: As opposed to other accounting 
assessment tools, it aids accountants in saving time.
2. Assists in decision-making: It assists managers in 
making strategic decisions that affect budgets 
3. Improves product selection: This can help managers 
assess which goods and services may make maximum 
profits
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