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Module 4: Cost-Volume-Profit Analysis

In this unit we explore the relationships around

costs, volume, and profit (CVP), and how companies
plan for profitability.

We examine how business managers use costs,
volume, and profit to calculate how much they need

to produce to achieve the break-even point and
generate future profits.

For example, a chief executive officer (CEO) of a
company that manufactures skateboards should know

how many boards they need to produce to cover their
costs and earn a decent profit by end of the month.

Breakeven analysis is the same with CVP analysis
and identifies how changes in key variables impact

financial projections and profitability.

The CVP method makes predictions and those
predictions are subject to variance. It can provide a
measure of sensitivity of profits to the CVP variables

and provide information on how production should be
managed when production inputs are constrained.