Why It Matters: Cost Volume Profit Analysis

Why do managers need to understand the CVP relationship and analysis?

As a manager, you have tons of important decisions to make regarding what products to make, how to price them and market them. You may also be charged with figuring out whether to stick with manual labor or purchase a big piece of equipment that lowers variable costs, but raises fixed costs.

Making these kinds of decisions is easier if you implement an analysis of selling prices, variable and fixed costs to make decisions to help your company remain profitable.

What if you took a product to market, and later, after selling the product for a while, you discovered that your costs far outweighed the selling price? Do you think your boss would be happy, knowing that every product that went out the door was costing her money rather than making her money?

Learning some valuable analysis skills can help you to make good decisions in your job.