Financial Management

According to research Cost-volume-profit (CVP) analysis is a technique that examines changes in profits in response to changes in sales volumes, costs, and prices. Accountants often perform CVP analysis to plan future levels of operating activity and provide information about:
_ Which products or services to emphasize
_ The volume of sales needed to achieve a targeted level of profit
_ The amount of revenue required to avoid losses
_ Whether to increase fixed costs
_ How much to budget for discretionary expenditures
_ Whether fixed costs expose the organization to an unacceptable level of risk
Cost-Volume-Profit Analysis
There are   five components of CVP analysis ; (a) volume or level of activity, (b) unit selling prices, (c) variable cost per unit, (d) total fixed costs, and (e) sales mix.
The COST–VOLUME–PROFIT (C–V–P) analysis is the analysis of the cost evolution
models, which points out the relations between cost, production volume and profit. The C–V–P analysis is a useful forecasting as well as managerial control tool. The method includes a set of problem solving techniques and procedures, based on understanding the
characteristics of company costs evolution models. The techniques express the relations
between income, sales structure, costs, production volume and profits and include breakeven   point analysis and profit forecasting procedures. These relations provide a general economic activity model, which may be used by managers to make short-term forecasts, to assess company performance and to analyze decision-making alternatives.
Dorina BUDUGAN*, Iuliana GEORGESCU**
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