DQ4.docx - Cost-Volume-Profit CVP analysis is an...

Cost-Volume-Profit (CVP) analysis is an essential accounting technique for any
organization especially manufacturing companies. This accounting technique plays a significant
role in profit planning. CVP involves investigating the impacts of variation in volume and costs
of the organization's profits. It also features in making critical managerial decisions like product
mixing, selling prices, and production facility optimization (Hyršlová et al., 2011). Five major
components make up the CVP and these include; Selling price per unit, production volume, total
fixed cost, variable cost per unit, and product mix sales. CVP investigates the relationship
between the five components and how varying them will impact the profit margin.
The volume refers to the current market and company condition. It reflects on how the
sales look and indicates the movement of the products. Selling price per unit refers to the amount
the product goes for in the market at the given time. Variable costs are directly proportional to