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Cost-volume-profit (CVP) analysis. also called break-even analysis is a technique to analyse and understand the relationship between the cost sales volume and profit for products manufactured and sold by a company. This relationship can be expressed in form of mathematical equation as well as in the form of a graph. When the graphical version of the technique is used, it may is called break-even chart technique.
The CVP analysis is useful in taking decisions related to installing manufacturing capacity and selling prices taking in to consideration that different levels of manufacturing capacity display different structure of fixed and and variable components of manufacturing cost, and the impact of difference between selling price and variable cost on contribution for recovering the the fixed costs and making profit.
However it will not be right to say that it is the most valuable tool available to managers. Managers typically need to pay attention to a wide variety of factors and decisions, for which they need to employ a wide variety of tools and techniques. Many of such techniques are equally important to effective management.
Posted by krishna-agrawala on August 22, 2010 at 11:07 PM (Answer #1)
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