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CVP is a type of cost accounting. It is a simpler model, helpful for the elementary training and used for making decisions in the short run.
A critical portion of this analysis is a point where the total costs equal the total revenues. At the break-even peak, a firm will experience no loss or income. This point can be a primary examination, which precedes detailed CVP analysis.
CVP analysis utilises similar basic essentials as in the break-even analysis. Following are the essentials-
While developing the CVP analysis that includes break-even analysis; it is an essential that all costs divide into fixed and variable costs.
CVP holds an essential that the total fixed cost does not change in short-run.
Appropriate range for numerous costs is very small. In such case, it becomes rough to evaluate the required volume.
Frequently, quantity discount is allowed for various lots of purchase.
Submission of CVP analysis is probably only in the following two cases-
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