7/31/2019 ACC 561 Week 4 DQ 1

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ACC 561Week 4  – DQ 1

What are the components of cost –

volume –

profit (CVP) analysis? How does a CVPincome statement help management make decisions?

The components of cost-volume-profit (CVP) analysis are the volume or level of activity; unit selling

prices; variable cost per unit; total fixed cost; and sales mix. In addition to the CVP analysis are a CVP

income statement, margin of safety, and a break-even analysis. The components correlate within the

CVP analysis to display levels of activities of costs and revenues within the organization. Variable cost

per unit is formulated by dividing the change in total cost by the high minus low activity level. Fixed

costs do not change regardless of changes in activity. Sales mix displays products sold. Also, mixed costs

are pertinent within a CVP analysis. These costs are either classified fixed and variable categories. Data is

collected on mixed costs at various activity levels to identify the fixed and variable cost components to

these mixed costs.

The CVP income statement helps management to make decisions in areas such as classifying variable or

fixed costs and compute a contribution margin. Furthermore, this contribution margin per unit and

selling price indicates the increase in income as a result of sales increase. Management can also

evaluate whether company profitability from determining what amount of sales is needed to cover costs

by the unit selling price, unit variable cost, and total fixed costs.

Kimmel, P.D., Weygandt, J.J., & Kieso, D.E. (2009). Accounting: Tools for Business Decision

Making (3rd

ed.). Hoboken, NJ: John Wiley & Sons.