What is the purpose of doing a cost-volume-profit (CVP) analysis?
A) CVP analysis is effectively used by single-product firms only.
B) CVP analysis provides managers with information used for control only.
C) CVP analysis shows how revenues, expenses, and profits behave as volume changes.
D) CVP analysis allows managers to do sensitivity analysis by examining the impact of various prices or costs on volume.

Question

Quizplus · Accepted Answer

The purpose of CVP analysis is to show how revenues, expenses, and profits behave as volume changes. It helps managers understand the relationship between sales volume, costs, and profits, and make informed decisions about pricing, production levels, and other factors that impact profitability. CVP analysis can be used by both single and multi-product firms and provides valuable information for planning and control. While sensitivity analysis is a useful tool that can be used in conjunction with CVP analysis, it is not the primary purpose of the technique.

What Is the Purpose of Doing a Cost-Volume-Profit (CVP) Analysis