What is CVP Analysis? Whats the relationship between CVP and Business Profitability?

Dear Students,

Every Business Organisation intends to grow and prosper in terms of earning more profits and more market visibility. Few even strive harder to increase their business turnover.

So, what is the key to growth in Business? Profits- isn't it? The Organisations which have high profitability in their concerned business areas are the leading ones in the business sector. As students of Accountancy and Finance, let us understand a simple three fold relationship-

Profits = Sales- Cost

Thus, if we want to improve Profits, we have to either increase Sales or reduced costs. Business organisations should always monitor costs involved in all of their business processes and device means and methods to reduce the same.

CVP analysis is thus a vital tool used by the top level management in budgeting and profit planning.

Regards