• Unit 4: Cost-Volume-Profit Analysis

    This unit explores the relationships that revolve 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 of a company that manufactures snowboards should know how many boards they need to produce to cover their costs and earn a decent profit by the end of the month.

    Breakeven analysis is synonymous with CVP analysis and identifies how key variables affect financial projections and profitability.

    Completing this unit should take you approximately 3 hours.

    • 4.1: Cost-Volume-Profit Analysis

    • 4.2: Using Cost-Volume-Profit Models for Sensitivity Analysis

    • 4.3: Impact of Cost Structure on CVP Analysis

    • 4.4: Using a Contribution Margin When Faced with Resource Constraints

    • Unit 4 Assessment

    • Unit 4 Conclusion

      In this unit, you saw how cost-volume-profit analysis (also known as break-even analysis) is used for financial decision-making. The CVP method makes predictions, and those predictions are subject to variance. Fortunately, CVP can provide a measure of the sensitivity of profits to the CVP variables. You also saw that CVP provided information on how production should be managed when production inputs are constrained. In the next unit, you will learn about differential analysis, another tool for managers to deal with uncertainty.