Cost Volume Profit Relationships

Cost volume profit (CVP) analysis helps managers understand the interrelationships among cost, volume and profit by focusing their attention on the interactions among the prices of products, volume of activity, per unit variable costs, total fixed costs and mix of products sold. It is a vital tool used in many business decisions such as deciding what products to manufacture or sell, what pricing policy to follow, what marketing strategy to employ and what type of productive facilities to acquire.