What are the components of cost–volume–profit (CVP) analysis? How does a CVP income statement help
management make decisions?
The CVP income statement is helpful to management for internal use. The
information can allow management to make estimate for future costs, and
revenues to help forecast and plan for operations activities, and the
performance of the business. Management is concern with the cost of
products, volume of sales, the selling price per unit, sale mix, and the profits.
Example, Boo Enterprise is selling a new and improved texting card,
management will use this information to determine what step need to be taking
for the business to remain profitable. The information below shows that Boo
Enterprise has a net income of $300,000 thus the company is making a profit.
Boo Enterprise could use this information toward a strategy to double the sale
for the next fiscal year.
Texting Cards
Unit selling price $400
Variable cost $200
Total monthly fixed cost $100,000
Total unit sold 2,000
Boo Enterprise
CVP Income Statement
For the Month Ended April 30, 2012
Total
Sales (2,000 texting cards)
Per Unit
$800,000
$400
Variable costs
$400,000
$200
Contribution margin
$400,000
$200
Fixed costs
$100,000
Net Income
$300,000
Reference
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2009). Accounting: Tools for business
decision making (3rd ed.). Hoboken, NJ: John Wiley & Sons