Cost volume profit analysis shows how changes in product margins, prices, and unit volumes impact the profitability of a business (Bragg, S. (2020, July 12). Cost volume margins are beneficial for a company to find the best price to sell their products. CVP show a company how high or low they must sell their products to produce the most profit and sales. If a company sells an item for too little they won’t make that much profit but it would sell quicker. If the company sells a product for to much it will give the company a bigger profit but it will sell slow. CVP analysis it helps find the company’s perfect price. It is important to determine a company’s breakeven point so the company has an understanding of how much product or service they will have to provide to begin to make a profit.
Bragg, S. (2020, July 12). The components of cost volume profit analysis. Retrieved September 26, 2020, from https://www.accountingtools.com/articles/what-are-the-components-of-cost-volume-profit-analysis.html
2.Cost Volume Profit analysis is used to determine the volume effect for a company operating income and net income and changes in costs. Cost Volume Profit analysis is also known as Break-even analysis. Are analyzed by the CVP analysis are variable cost sale price and fixed costs remain constant. Components of CVP analysis are active levels in the total number of units sold. The average price sold per unit which includes the sale discounts that reduces the gross pricing, mixed products and services price per unit, variable cost per unit, and the total fixed cost from period to period. Its important to determine a companies break-even point because, with break-even breakpoint is that level of activity where every cost incurred by the company is earned. At break-even point total revenue is equal to total cost. Total cost means total variable cost and total fixed cost.