What is the main goal of cost-volume-profit (CVP) analysis?

The main goal of cost-volume-profit (CVP) analysis is to assess how changes in costs and sales volume affect a company's operating income and net income. This analysis is essential for management decision-making because it provides insights into the relationship between fixed and variable costs, sales levels, and profits. By understanding this relationship, businesses can make informed decisions on pricing, production levels, and cost control measures, ultimately aiding in achieving desired profit margins.

CVP analysis focuses on key variables such as selling price, volume of sales, variable costs, and fixed costs, allowing managers to model different scenarios and anticipate the financial outcomes of various business strategies. This makes it a critical tool for planning and forecasting, particularly in settings where understanding the breakeven point and the impact of changes in production levels is crucial for sustaining profitability.