Define Cost Volume-Profit relationship

Question

Describe briefly Cost Volume-Profit relationship?

Answer 1

Cost Volume-Profit (or CVP) relationship is determination that studies the relationships among the subsequent factors and its affect on the amount of profits.

- Total sales amount and selling price per unit Total cost that might be in any form that is, fixed cost or Variable cost.

- Volume of sales

In easy terms, CVP is a management accounting instrument which signifies relationship among total sales, profit and total cost. Cost Volume-Profit relationship is one of the significant techniques of cost and management accounting. It is a powerful instrument that gives the entire picture of the profit structure and aids in planning of profits. It can as well answer what if type of questions by telling the volume needed to produce. This concept is applicable in all decision making regions, mainly in the short run.