Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It focuses solely on fixed costs.
B
It determines the sales volume needed to cover costs and optimize profit.
C
It emphasizes only variable costs.
D
It ignores sales price changes.
Understanding the Answer
Let's break down why this is correct
Answer
Cost-Volume-Profit (CVP) analysis helps businesses understand how changes in costs and sales volume affect their profit. It looks at fixed costs, variable costs, and sales price to determine the break-even point, which is where total revenue equals total costs. By knowing this point, businesses can decide how much to produce and sell to maximize profit. For example, if a company sells a product for $20, has fixed costs of $1,000, and variable costs of $10 per product, CVP analysis shows that it needs to sell more than 100 units to start making a profit. This information allows the business to set production levels that optimize their output and increase their earnings.
Detailed Explanation
CVP analysis helps businesses find out how much they need to sell to cover all costs. Other options are incorrect because Some might think CVP only looks at fixed costs, but it actually considers both fixed and variable costs; This option suggests CVP only cares about variable costs, which is not true.
Key Concepts
Cost-Volume-Profit Analysis
Output Level Optimization
Topic
Profit Maximization Techniques
Difficulty
medium level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.