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

Prof. Univ. Dr. Elena Ruse ()
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Prof. Univ. Dr. Elena Ruse: University: Spiru Haret College: Management Financiar Contabil Constanta

Ovidius University Annals, Economic Sciences Series, 2010, vol. X, issue 1, 1912-1916

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.

Keywords: cost-volume-profit; analysis; balance point (search for similar items in EconPapers)
JEL-codes: M1 M41 (search for similar items in EconPapers)
Date: 2010
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