Cost-Volume-Profit (CVP) Analysis

Cost-Volume-Profit (CVP) Analysis is a financial modeling tool used to determine how cost changes and sales volume affect a company’s profit. It examines the relationships between fixed and variable costs, sales price per unit, sales volume, and profit. CVP analysis helps businesses understand their break-even point, where total revenues equal total costs, and how profits change with variations in output levels. By identifying the contribution margin (sales price minus variable cost per unit), it aids in decision-making regarding pricing, product mix, and cost control. This analysis is essential for strategic planning and optimizing financial performance.