Cost-Volume Profit Analysis

AAA

DEFINITION of 'Cost-Volume Profit Analysis'

A method of cost accounting used in managerial economics. Cost-volume profit analysis is based upon determining the breakeven point of cost and volume of goods. It can be useful for managers making short-term economic decisions, and also for general educational purposes.

INVESTOPEDIA EXPLAINS 'Cost-Volume Profit Analysis'

Cost-volume profit analysis makes several assumptions in order to be relevant. It often assumes that the sales price, fixed costs and variable cost per unit are constant. Running this analysis involves using several equations using price, cost and other variables and plotting them out on an economic graph.

RELATED TERMS
  1. Volume

    The number of shares or contracts traded in a security or an ...
  2. Profit

    A financial benefit that is realized when the amount of revenue ...
  3. Cost Accounting

    A type of accounting process that aims to capture a company's ...
  4. Tangible Cost

    A quantifiable cost related to an identifiable source or asset. ...
  5. Intangible Cost

    An unquantifiable cost relating to an identifiable source. Intangible ...
  6. Chart Of Accounts

    A listing of each account a company owns, along with the account ...
RELATED FAQS
  1. What are the differences between absorption costing and variable costing?

    Absorption costing includes all costs, including fixed costs, in figuring the cost of production, while variable costing ... Read Full Answer >>
  2. How does a company determine the right level of sales volume?

    A company determines the right level of sales volume by conducting a cost-volume-profit analysis. This helps a company figure ... Read Full Answer >>
  3. What are some of the limitations and drawbacks of using a payback period for analysis?

    Limitations, or disadvantages, of using the payback period method in capital budgeting include the fact that it fails to ... Read Full Answer >>
  4. What are common concepts and techniques of managerial accounting?

    The common concepts and techniques of managerial accounting are all the concepts and techniques that surround planning and ... Read Full Answer >>
  5. How are fixed costs treated in cost accounting?

    Fixed costs are one of the two major inputs, along with variable costs, in cost accounting that are used by a company's management ... Read Full Answer >>
  6. When would a vendor care about its accounts payable turnover ratio?

    Vendors can act as suppliers or manufacturers, so they must pay attention to accounts payable and accounts receivable. An ... Read Full Answer >>
Related Articles
  1. Investing

    Zooming In On Net Operating Income

    NOI is a long-run profitability measure that smart investors can count on.
  2. Economics

    How Return On Equity Can Help You Find Profitable Stocks

    It pays to invest in companies that generate profits more efficiently than their rivals. This is where ROE comes in.
  3. Budgeting

    Use ROA To Gauge A Company's Profits

    Do you rely too heavily on ROE? Consider using return on assets for a more complete picture.
  4. Options & Futures

    Options On Futures: A World Of Potential Profit

    There's one simple hurdle in the transition from stock to futures options: learning about product specifications.
  5. Markets

    Your Dividend Payout: Can You Count On It?

    We go over several telling factors that can help you answer this question and avoid losses.
  6. Active Trading Fundamentals

    DMI Points The Way To Profits

    The directional movement index tells you whether to go long, short or stand aside.
  7. Investing Basics

    Calculating Unlevered Free Cash Flow

    Unlevered free cash flow (UFCF) is the free cash flow of a business before interest payments.
  8. Taxes

    Understanding Write-Offs

    Write-off has different meanings depending on the context in which it is used, but generally refers to a reduction in value due to expense or loss.
  9. Economics

    What are Capital Goods?

    Capital goods are assets with a useful life of more than one year that are used for the production of income.
  10. Economics

    Understanding Capital Assets

    A capital asset is one that a company plans on owning for more than one year, and uses in the production of revenue.

You May Also Like

Hot Definitions
  1. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  2. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  3. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  4. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  5. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
  6. Risk-Return Tradeoff

    The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!