CVP Analysis

Cost-volume-profit analysis, or CVP, is something companies use to figure out how changes in costs and volume affect their operating expenses and net income. In other words, CVP is a methodical analysis of the dynamic inter-relationship between selling prices, sales and production volume, cost expenses, and profits.

Respond to one or more of the following in a minimum of 175 words:

• Explain each of the three elements of CVP analysis. Discuss how managers use CVP analysis.
• “Break-even analysis is of limited use to management because a company cannot survive by just breaking even.” Do you agree? Explain.
• How does a company’s operating leverage effect its profitability?
• Discuss the concepts of relevant costs and incremental costs. How do they relate? Provide examples.
• In what type of business decisions can incremental analysis be used?