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Hello class, Cost-volume-profit (CVP) analysis is a way to find out how changes in variable and fixed costs affect a firm's profit. Companies can use CVP to see how many units they need to sell to break even, cover all costs, or reach a certain minimum profit margin (Drury, 2018). The breakeven point is the number of units that need to be sold or the amount of sales revenue that has to be generated in order to cover the costs required to make the product (Drury, 2018). CVP analysis makes several assumptions, including that the sales price, fixed, and variable costs per unit are constant. CVP analysis also manages product contribution margin. The contribution margin is the difference between total sales and total variable costs. For a business to be profitable, the contribution margin must exceed total fixed costs and it can also be calculated per unit (Drury, 2018). CVP analysis is only reliable if costs are fixed within a specified production level. All units produced are assumed to be sold, and all fixed costs must be stable in CVP analysis (Drury, 2018). Understanding the break even point of a company is important because it involves using several equations for price, cost, and other variables, which it then plots out on an economic graph. Reference: Drury, C. (2018). Cost and management accounting. Belmont, CA, USA: Cengage Learning.

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