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Why is Cost Volume Profit analysis useful Why is it an important co

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Why is Cost-Volume-Profit analysis useful? Why is it an
important concept in managerial accounting?
Solution
CVP analysis is one of the most important concepts in
managerial accounting. It is frequently used in making
important managerial decisions with the use of different
tools and techniques. The impact of changes in
components like selling price, sales volume, variable cost
and fixed cost on the profitability of the company is
estimated with the use of CVP analysis.
CVP analysis involves calculation of break even point,
contribution margin and contribution margin ratio. These
calculations often form the basis of key decisions taken by
any business. For Instance, the decision relating to
acceptance of a new order is generally based on the
calculation of additional contribution margin generated by
such order.
Calculation of Break Even Point helps in determining the
minimum level of sales the company is required to achieve
in order to remain in the business.

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Why is Cost-Volume-Profit analysis useful? Why is it an important concept in managerial accounting? Solution CVP analysis is one of the most important concepts in managerial accounting. It is frequently used in making important managerial decisions with the use of different tools and techniques. The impact of changes in components like selling price, sales volume, variable cost and fixed cost on the profitability of the company is estimated with the use of CVP analysis. CVP analysis involves calculation of break even point, contribution margin and contribution margin ratio. These calculation ...
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Anonymous
Really useful study material!

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