Question

4. Explain 2 important of Cost Volume Profit Analysis.

Answer 1

Answer:

Importance of CVP Analysis:

The relationship between cost, volume and profit makes up the profit structure of an enterprise. ... As a starting point in profit planning, it helps to determine the maximum sales volume to avoid losses, and the sales volume at which the profit goal of the firm will be achieved.

Answer 2

Answer:

Importance of CVP Analysis:

1. The CVP analysis is very much useful to management as it provides an insight into the effects and inter-relationship of factors, which influence the profits of the firm. The relationship between cost, volume and profit makes up the profit structure of an enterprise. Hence, the CVP relationship becomes essential for budgeting and profit planning.

2. As a starting point in profit planning, it helps to determine the maximum sales volume to avoid losses, and the sales volume at which the profit goal of the firm will be achieved. As an ultimate objective it helps management to find the most profitable combination of costs and volume.

Explanation:

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