Cost-Volume-Profit (CVP)

Overview

Description

Costs, volume, and profits are connected. Companies categorize their costs as either variable or fixed. Because fixed costs remain unchanged regardless of the company's sales activity, the company must cover its fixed costs to prevent producing products without making a profit. To do this, they calculate the company's break-even point. The break-even point shows how much a company must sell, and at what price, to cover its costs. The company's sales mix, which is how much each individual product contributes to its total sales, also affects its plans because those products vary in profitability.

At A Glance