Welcome to FindMyBest CPA
Accounting & Financial Directory
Find local and nationwide accounting and financial businesses. We have located the best Accountants, CPAs, Accounting Firms, Tax Consultants, Tax Return Preparers, Bookkeepers and Financial Advisors in the US.
Business Directory
Tax & Accounting Articles - Cost Accounting
CPA's Find New Clients Today
FindMyBestCPA Search
User Details
Reviews and Comments
Search top city
Atlanta Accountants
Boston Accountants
Chicago Accountants
Dallas Accountants
Detroit Accountants
Huston Accountants
Los Angeles Accountants
Miami Accountants
New York Accountants
Philadelphia Accountants
San Francisco Accountants
Washington Accountants
List of General Articles
Fortune 500 Company List
CPA Guide
Other Taxes
Income Taxes
Accounting Tools
IRS Tax Forms
Public Accounting
Financial Statements
Other Types of Accounting
Accounting and Terminology
Governing Bodies and Regulations
Tax & Accounting Sub Category Articles
CPA's Find New Clients For Your Firm
Accounting Information > Cost Accounting > Cost Volume Profit Relationships
Cost-Volume-Profit Relationships

Cost-volume-profit (CVP) analysis is the term for the methodical examination of the relationships between costs, volume of activity, prices, and profit. Organizations use CVP analysis for determining the break-even point for their operations, as well as for many other management decisions. The break-even point is the activity level where total costs equal total revenues. There is no profit at this point, but all of the costs have been covered by the revenue generated.


In CVP analysis, profit equals revenue minus cost. At the break-even point, profit is zero, so revenue minus cost equals zero, or revenue equals cost. For CVP analysis, revenue and costs need to be expressed in unit prices, unit costs, and volume, and cost needs to be broken down into fixed and variable cost. For this reason, the break-even formula becomes selling price per unit multiplied by number of units produced and sold equals fixed cost plus variable cost per unit multiplied by number of units produced and sold.

There is another method of determining the break-even point. This is called the contribution margin method. The contribution margin is revenue minus variable cost. Another way of saying that is that the contribution margin is the amount left over to cover fixed costs and generate a profit. Companies can compute their contribution margin in total or per unit. To calculate the break-even point, you would divide fixed cost by the contribution margin per unit.

CVP analysis is used by management to evaluate the effect of changes in fixed costs, variable costs, and selling prices on profit. CVP analysis reveals data regarding the required volume of activity, cost, or price to meet a targeted profit amount. It is also used to analyze costs and profits based on varying activity levels.

Another part of CVP analysis is the margin of safety ratio. This ratio computes the difference between the actual level of activity and the break-even point, and is shown as a percentage of sales. The formula for the margin of safety ratio is actual sales minus break-even sales, divided by actual sales. A large ratio indicates that the company is not likely to operate at below the break-even point if sales would decrease.

CVP analysis can be used to evaluate more than one activity at a time. A weighted average contribution margin can be computed by using the sales mix of the different products. To determine the break-even point in units, you would divide total fixed costs by the average contribution margin. To determine the break-even point in sales dollars, you would divide total fixed costs by the average contribution margin ratio. Break-even analysis for multiple products is only valid when the sales mix remains constant, because the break-even point would change if the sales mix changed.

If you are looking for a CPA or Accounting Firm to assist you with your cost accounting, general accounting, income tax reporting, bookkeeping, or financial planning needs, then you have come to the right place! Use the CPA Search feature on this website to find a qualified professional in your area to meet your needs.

© Copyrights 2007, All Rights Reserved.
Home     AboutUs     CPA Directory     List Your Firm     Links     Privacy     Contact Us