Cost-Volume-Profit (CVP) Analysis for Business Decision Making

This report provides a comprehensive overview of Cost-Volume-Profit (CVP) analysis and its application in business decision-making. It begins by introducing CVP analysis, highlighting its importance in understanding the relationship between costs, volume, and profit. The report then delves into how CVP analysis is used in making crucial business decisions, emphasizing the role of the contribution margin and break-even points. It discusses how CVP analysis helps in determining the impact of costs and volume changes on net income. The report also considers the assumptions underlying CVP analysis, ensuring its relevance to the financial decision-making process, and concludes with a summary of the analysis, emphasizing its practical implications for managers and business analysts.

Running head: CVP Analysis and Uses in Decision Making
Cost Volume Profit (CVP) Analysis and it’s Uses for Decision Making
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1CVP Analysis and Uses in Decision Making
Table of Contents
Introduction..........................................................................................................................2
CVP Based Decision Making..............................................................................................2
Conclusion...........................................................................................................................3
References............................................................................................................................4

2CVP Analysis and Uses in Decision Making
Introduction
Cost Volume Profit analysis can be understood as a process that is used by organizations
in revealing the variations in costs and volume that impacts their net income and operating
expenses. CVP works through recognizing differences in distinct relationships like cost of
producing and operating goods, the volume of goods sold and profits gathered from sale of
products. 1 Through breaking costs into fixed variable, CVP evaluation offers organizations
strong perception regarding their produce and services profitability.
CVP Based Decision Making
CVP analysis can facilitate organizations in determining the contribution margin that can
be deemed as the amount remained from sales revenue after deducting all variable expenses. The
remaining amount is employed initially for covering fixed costs and the remaining amount is
considered as profit. CVP evaluation is relied on determining the breakeven point of volume and
cost of goods and might be useful for managers in making short-term managerial decisions. In
making such organizational decisions, CVP analysis makes certain assumptions for being
relevant.2 This considers fixed cost, variable cost and the sales price per unit must remain
1 Bergo, G, B Lucas, V Sobreiro, & M Nagano, "Multiproduct Cost-Volume-Profit Model:
A Resource Reallocation Approach for Decision Making.". in Journal of Cost Analysis
and Parametrics, 9, 2016, 164-180.
2 Ihemeje, J, "Cost-volume-profit Analysis and Decision Making in the Manufacturing
Industries of Nigeria.". in Journal of International Business Research and Marketing, 1,
2015, 8-16.

3CVP Analysis and Uses in Decision Making
constant. As the CVP analysis is relied on statistical models, decisions can be segmented into
probabilities that can facilitate a company’s decision making process.
Conclusion
From analysis of the paper it is gathered that CVP analysis facilitates managers in being
capable to answer certain pragmatic questions required in business analysis. This can facilitate
managers in making decision regarding future spending and production and the ways it can be
developed so that they contribute in success of the company.

4CVP Analysis and Uses in Decision Making
References
Bergo, G, B Lucas, V Sobreiro, & M Nagano, "Multiproduct Cost-Volume-Profit Model: A
Resource Reallocation Approach for Decision Making.". in Journal of Cost Analysis and
Parametrics, 9, 2016, 164-180.
Ihemeje, J, "Cost-volume-profit Analysis and Decision Making in the Manufacturing Industries
of Nigeria.". in Journal of International Business Research and Marketing, 1, 2015, 8-16.