Chapter 20 Study Notes - Analyzing CVP Relationships

Chapter 20 Study Notes - Analyzing CVP Relationships -...

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MANAGERIAL CHAPTER 16 COST VOLUME PROFIT (CVP) ANALYSIS CVP is a common form of analysis used within business to make decisions re. products, product lines, grouping of products Particularly common in manufacturing and merchandising businesses Can also be used in service businesses for more routine services (e.g. for janitorial services it would probably be effective, but may not work as well with respect to legal services re. a big class action lawsuit) Key to effectiveness—being able to predict all your relevant variable & fixed costs for just that 1 particular product, etc with respect to which you are making the decision. Often involves working closely with other departments such as marketing, production, human resources, research & design 1. Specify exactly which product, etc is the focus of the decision—make it as narrow as possible 2. Determine ALL the future costs necessary to the production/sale/distribution of the product relevant to the decision at hand Look at the entire value chain re. the decision at hand, not just production costs
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Chapter 20 Study Notes - Analyzing CVP Relationships -...

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