ACC 349 Week 3 DQ 1

Cost-volume profit (CVP) identifies the effects of the changes in costs and volumes to a company's profit. This analysis is used in profit planning to help management determine the best prices for products and the product mixes to use as well as aiding a company in the maximization use of the production plant. Some assumptions that characterize CVP are that such classifies costs as either fixed or variable, and that affects of costs are due to changes in activity solely. Furthermore, CVP assumes that changes inĀ costs and revenues are linear along the activity index. These assumptions aid decision makers as CVP provides managers with a contribution margin to indicate the amount needed to be sold at a particular priceĀ to make a profit. That paired with the aid in the determination of the effects of sales changes on net income by using the contribution margin ratio, are reasons managers find CVP helpful and beneficial.
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