* A margin of safety is also displayed, which is the amount of sales at a break-even point and the actual or expected sales for the company. Next, the income is projected for certain products, this is known as the target net income.
* The Cost-Volume-Profit Analysis then closes with reporting changes in the business environment and revisits the CVP income statement to review profit analysis and projections over a period of time.
Component of CVP analysis:
Cost volume profit analysis (CVP analysis) is one of the most powerful tools that managers have at their command. It helps them understand the interrelationship between cost, volume, and profit in an organization by focusing on interactions among the following five elements:
1. Prices of products
2. Volume or level of activity
3. Per unit variable cost
4. Total fixed cost
5. Mix of product sold
Because cost-volume-profit (CVP) analysis helps managers understand the interrelationships among cost, volume, and profit it is a vital tool in many business decisions. These decisions include, for example, what products to manufacture or sell, what pricing policy to follow, what marketing strategy to