Cvp Analysis Report
Cost-Volume-Profit Analysis
CVP Analysis is a way to quickly answer a number of important questions about the profitability of a company 's products or services. CVP Analysis can be used with either a product or service. Our examples will usually involve businesses that produce products, since they are often more complex situations. Service businesses (health care, accounting, barbers & beauty shops, auto repair, etc.) can also use CVP Analysis.
It involves three elements:
Cost - the cost of making the product or providing a service
Volume - the number of units of products produced or hours/units of service delivered
Profit - Selling Price of product/service - Cost to make product/provide service = Operating Profit
The first two items are information available to business managers, about their own business, products and services. This type of information is not generally available to those outside the business. They constitute important operating information that can help managers asses past performance, plan for the future, and monitor current progress. As for the third item, a business can 't stay in business very long without profits.
It is important to know whether the company is profitable as a whole. It is also important to know if a particular product is profitable. A business that sells 100 or more different products may lose sight of a single product. If that product becomes unprofitable (selling for less than the cost to produce & sell), the company will lose money on each and every sale of that product. The company might raise the selling price, cut production costs or discontinue the product entirely. Building a business with 100 products we know are profitable is good management. CVP & variable costing provide the tools to make this happen in a real business.
A successful business can be built around a single profitable product. It can also be built around hundreds or thousands of profitable products. Many businesses start small and grow
CVP Analysis is a way to quickly answer a number of important questions about the profitability of a company 's products or services. CVP Analysis can be used with either a product or service. Our examples will usually involve businesses that produce products, since they are often more complex situations. Service businesses (health care, accounting, barbers & beauty shops, auto repair, etc.) can also use CVP Analysis.
It involves three elements:
Cost - the cost of making the product or providing a service
Volume - the number of units of products produced or hours/units of service delivered
Profit - Selling Price of product/service - Cost to make product/provide service = Operating Profit
The first two items are information available to business managers, about their own business, products and services. This type of information is not generally available to those outside the business. They constitute important operating information that can help managers asses past performance, plan for the future, and monitor current progress. As for the third item, a business can 't stay in business very long without profits.
It is important to know whether the company is profitable as a whole. It is also important to know if a particular product is profitable. A business that sells 100 or more different products may lose sight of a single product. If that product becomes unprofitable (selling for less than the cost to produce & sell), the company will lose money on each and every sale of that product. The company might raise the selling price, cut production costs or discontinue the product entirely. Building a business with 100 products we know are profitable is good management. CVP & variable costing provide the tools to make this happen in a real business.
A successful business can be built around a single profitable product. It can also be built around hundreds or thousands of profitable products. Many businesses start small and grow