ACCA PM Syllabus C. Decision-making Techniques - CVP Analysis - Notes ^{1 / 6}

One of the most important decisions that needs to be made before any business even starts is ‘how much do we need to sell in order to break-even?’

By ‘break-even’ we mean simply covering all our costs without making a profit.

This type of analysis is known as ‘cost-volume-profit analysis’ (CVP analysis).

CVP analysis looks primarily at the effects of differing levels of activity on the financial results of a business.

The reason for the particular focus on sales volume is because, in the short-run, sales price, and the cost of materials and labour, are usually known with a degree of accuracy.

Sales volume, however, is not usually so predictable and therefore, in the short-run, profitability often hinges upon it.