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

Author

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  • Prof. Univ. Dr. Elena Ruse

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

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.

Suggested Citation

  • Prof. Univ. Dr. Elena Ruse, 2010. "The Balance Point’s Role In The “Cost-Volume-Profit” Analysis," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 1912-1916, May.
  • Handle: RePEc:ovi:oviste:v:10:y:2010:i:1:p:1912-1916
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    More about this item

    Keywords

    cost-volume-profit; analysis; balance point;

    JEL classification:

    • M1 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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