COST VOLUME PROFIT ANALYSIS – ALL YOU NEED TO KNOW
The total cost of a firm depends on its volume of output. The total cost has two parts— fixed and variable. Fixed cost remains fixed at all levels of production in the short-run, but variable cost proportionately changes with the volume of output. Again the profit of the firm is dependent on its total sales and total cost. It is because of the positive difference between gross revenue (sales), and the total cost is profit.
Cost-Volume-Profit Analysis also commonly referred to as Break-Even Analysis, is a way for companies to determine how changes in costs (both variable and fixed) and sales volume affect a company’s profit. With this information, companies can better understand overall performance by looking at how many units must be sold to break even or to reach a certain profit threshold or the margin of safety……….
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