Cost-volume-profit analysis

This chapter aims to develop the concept of the contribution margin. It shows the various calculations related to breakeven analysis in detail. The primary focus in Cost-volume-profit (CVP) analysis is trying to determine future levels of profitability which requires an understanding of how much costs will be affected following any changes in sales. The CVP analysis is generally presented in the form of a contribution margin income statement in which the details of the variable and fixed costs are separately indicated. Breakeven analysis relates to the determination of a single point at which no gains or losses will be made in a business. The breakeven point is consequently the point at which the net income is exactly equal to zero. An extension of the basic breakeven analysis is the use of the concept of the safety margin.