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Briefly describe the cost-volume-profit analysis model anddiscuss how it can be used. Also, briefly explain the limitation ofbasic cost-volume-profit analysis as it relates to anorganization’s sales mix

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Lelia Lubowitz
Lelia LubowitzLv2
26 Oct 2018

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Cost-volume-profit (CVP)

posted Nov 28, 2016, 4:07 AM

Cost-volume-profit (CVP) analysis is a key step in manydecisions. CVP analysis involves specifying a model of therelations among the prices of products, the volume or level ofactivity, unit variable costs, total fixed costs, and the salesmix. This model is used to predict the impact on profits of changesin those parameters. Explain how changes in activity affectcontribution margin and net operating income.

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Job order costing and process costing are two major costing systems used in manufacturing. Briefly contrast the characteristics of these two systems.

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What is the importance of understanding the general economicenvironment and the industry situations in financial statementsanalysis?

Distinguish between horizontal and vertical analysis offinancial statement data.

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What is cost-volume-profit analysis? What are the assumptionsand limitations of cost volume profit analysis? How can thebreakeven and cost-volume-profit analysis help the company’smanagement in carrying out its function?

Explain the significance of the margin of safety?

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