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What is Cost Volume Profit?
In the domain of managerial economics, Cost Volume Profit refers to a type of cost accounting. This is a basic model which is helpful for short-term decisions and for the purpose of elementary instruction. The analysis of this model expands the utilization of the data that is offered by breakeven analysis. An essential component of this type of analysis is the specific point in which the total revenue amount equals the entire costs, both variable and fixed ones.
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Why is it important?
The Cost Volume Profit Analysis is influenced by 5 factors –Variable Costs, Fixed Costs, Selling prices of products, Mixture of various kinds of products sold and level of sales activity / volume of sales. Determining all of these factors can be assistive in cost control and planning of profits, although the task might seem complicated for students.
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