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The Balance Point’s Role In The “Cost-Volume-Profit” Analysis

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  • Prof. Univ. Dr. Elena Ruse

    ()
    (University: Spiru Haret College: Management Financiar Contabil Constanta)

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    Abstract

    Managers use the “Cost-Volume- Profit” (CVP) analysis as a support in decision making, some of which are strategic decisions. The fundamental hypothesis of CVP analysis is based on: 1. Changes that occur in business volume entail changes in revenues and costs; 2. Total costs are split into variable costs and fixed costs; 3. The total variable costs structure includes direct and indirect variable costs of a product, like fixed costs including direct and indirect fixed costs; 4. The analysis of revenues development and total costs in relation to production volume is carried out within a relevant time interval; 5. Within the limits of the relevant time interval the analysis coordinates (selling price, unitaty variable cost and fixed costs) are known and constant; 6. CVP analysis can be conducted on a single product, taking in consideration that the total ratios of different products would remain constant as the number of total units sold changes.

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    Bibliographic Info

    Article provided by Ovidius University of Constantza, Faculty of Economic Sciences in its journal Ovidius University Annals, Economic Sciences Series.

    Volume (Year): X (2010)
    Issue (Month): 1 (May)
    Pages: 1912-1916

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    Handle: RePEc:ovi:oviste:v:10:y:2010:i:1:p:1912-1916

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    Web page: http://www.univ-ovidius.ro/facultatea-de-stiinte-economice
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    Keywords: cost-volume-profit; analysis; balance point;

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