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Introduction To Cost

Cost-Volume-Profit (CVP) Analysis is a managerial accounting technique that evaluates how changes in costs and sales volume impact profitability, aiding in pricing, production, and cost control decisions. Key components include fixed costs, variable costs, contribution margin, break-even point, and profit planning. The analysis is based on assumptions regarding cost classification, selling price stability, fixed cost constancy, variable cost consistency, and complete sales of produced units.

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9 views1 page

Introduction To Cost

Cost-Volume-Profit (CVP) Analysis is a managerial accounting technique that evaluates how changes in costs and sales volume impact profitability, aiding in pricing, production, and cost control decisions. Key components include fixed costs, variable costs, contribution margin, break-even point, and profit planning. The analysis is based on assumptions regarding cost classification, selling price stability, fixed cost constancy, variable cost consistency, and complete sales of produced units.

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Pikachufanboy 01
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Introduction to Cost-Volume-Profit (CVP) Analysis

Definition: Cost-Volume-Profit (CVP) Analysis is a managerial accounting


technique used to analyze how changes in costs and sales volume affect a
company’s profitability. It helps businesses make informed decisions regarding
pricing, production levels, and cost control.
Key Components:
 Fixed Costs: Costs that remain constant regardless of production volume
(e.g., rent, salaries).
 Variable Costs: Costs that vary directly with production (e.g., raw
materials, direct labor).
 Contribution Margin: The difference between sales revenue and
variable costs.
 Break-even Point: The level of sales at which total revenue equals total
costs, resulting in zero profit.
 Profit Planning: Using CVP analysis to set sales targets to achieve a
desired level of profit.
Assumptions of CVP Analysis:
1. All costs can be classified as either fixed or variable.
2. The selling price per unit remains constant.
3. The total fixed cost remains unchanged.
4. The variable cost per unit remains constant.
5. The company sells all units produced (no inventory changes).

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