CVP Analysis

Question 1

interpretation of CVP results and testing of sensitivity to changing decisions about:
* volumes, product mixes, pricing and costs and the impact of capacity constraints
* make or buy decisions
* close down product/business unit decisions
* accept or reject special order decisions

Answer 1

• (practical)
• CVP analysis for decision making purposes (practical)
• cost behaviour
• contribution margin
• break-even point
• margin of safety
• CVP analysis is a technique used to determine the effects of changes in an organisations
  sales volume on its costs, revenue and profit.
• Five ways CVP analysis can assist management in decision making:
• what the selling price of a product should be
• how profit changes if any of the variable for fixed costs change
• at what volume of production will the business break even
• how profit changes if the selling price changes
• what volume of production a business needs to achieve in order to make a profit of a set
  amount