COST ACCOUNTING
COST BEHAVIORS
Question
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Review the impact on profit when there is a change in the Cost Volume Profit analysis element.


Determine sales level on Break Even Point.


Examining the relationship between changes in volume/unit and changes in total sales revenue, expenses and net profit.


Making decisions regarding pricing policies.

Detailed explanation1: Key Takeaways. Costvolumeprofit (CVP) analysis is a way to find out how changes in variable and fixed costs affect a firmâ€™s profit. Companies can use CVP to see how many units they need to sell to break even (cover all costs) or reach a certain minimum profit margin.
Detailed explanation2: The point of a CVP analysis is to determine how changes in variable and fixed costs will affect profits. What are the three elements of costvolumeprofit analysis? The three main elements are cost, sales volume and price. A CVP analysis looks at how these elements influence profit.
Detailed explanation3: CVP analysis helps management in finding out the relationship between cost and revenue to generate profit. CVP Analysis helps them to BEP Formula. It is determined by dividing the total fixed costs of production by the contribution margin per unit of product manufactured.
Detailed explanation4: The main assumptions that accountants make when using cvp analysis are that fixed costs will not change within the relevant range of activity, all costs can be classified into fixed and variable, the selling price per unit will stay constant, and fixed costs remain constant.