CMA: Part 2: CVP Analysis
While this is not specifically covered by the Performance Management syllabus, it is still useful to see it. This is very similar to a break-even chart; the only difference being that instead of showing a fixed cost line, a variable cost line is shown instead. If it sells exactly 10,000 units it will break-even, and if it sells more than 10,000 units, it will make a profit. While management accounting information can’t really help much with the crystal ball, it can be of use in providing the answers to questions about the consequences of different courses of action. One of the most important decisions that need to be made before any business even starts is ‘how much do we need to sell in order to break-even? ’ By ‘break-even’ we mean simply covering all our costs without making a profit. Cost-volume-profit analysis looks primarily at the effects of differing levels of activity on the financial results of a business The contribution margin ratio is determined by dividing the contribution margin by total sales. Purpose of CVP Analysis in Financial Planning To make things simpler for you to identity or distinguish advertised or sponsored articles or links, you may consider all…