Cost-Volume-Profit (CVP) Analysis and Break-Even Analysis Step-by-Step, by Mike Werner

Cost-Volume-Profit (CVP) Analysis, sometimes called Break-Even Analysis is a powerful cost/management accounting tool that managers, owners, or potential business owners can easily use evaluate business situations and alternatives in both single-product and multiple-product situation.

CVP analysis can be used to quickly and easily determine the level of dollar sales or units required to break-even or to achieve a target profit expressed as a dollar amount or as a percentage of sales.

CVP analysis looks at selling price, variable cost, fixed cost, and sales volume and explores their effect on profit.

Cost-volume-profit analysis can easily be used to perform “what-if” or sensitivity analysis - technique used to determine the effect of changing selling price, variable costs, and/or fixed cost. Changes can quickly and easily be incorporated into the calculations to determine the required sales level to break-even or to earn a target profit.

CVP is particularly useful for evaluating the profit potential of planned business ventures. CVP can help determine the best product pricing and cost structure, and in some cases may reveal, before any investment is even made, that the business venture is destined for failure. Thus, preserving the cash for other, more profitable alternative ventures.

[MikeWMiami]

Thank you for another great step by step accounting video!

[jessicamoskowitz]

Informative and well done video! Very helpful to anyone looking to make these calculations. Follow for more high quality videos!

[kayizasteven]

Thanks you Mr Mike for this wonderful video. My question is about how we can calculate contribution margin. Once it's not given.

Then what is the difference between cost drive and cost activity.

Thanks and be blessed.

[chalafufa]

is there any unique treatment of fixed income like hall rent for meeting for calculating the total sales?