Cost-Volume-Profit Analysis
Cost-volume-profit (CVP) analysis is used to determine how changes in costs and volume affect a company's operating income and net income. In performing this analysis, there are several assumptions made, including: ← Sales price per unit is constant. ← Variable costs per unit are constant. ← Total fixed costs are constant. ← Everything produced is sold. ← Costs are only affected because activity changes. ← If a company sells more than one product, they are sold in the same mix.

CVP analysis requires that all the company's costs, including manufacturing, selling, and administrative costs, be identified as variable or fixed.
Contribution margin and contribution margin ratio
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|
|$750,000 |
| |
|Variable Costs (250,000 units × $1.80) |
|450,000 |
| |
|Contribution Margin |
|300,000 |
| |
|Fixed Costs |
|300,000 |
| |
|Net