Cost Accouting Essay

Many entrepreneurs make the mistake of bringing a increase or service to the market without fully understanding the total be involved and the prices they can charge. As a publication, they dis unfold they cant sell enough of the product or service to make a profit. One of the most important tools you can occasion to make better business decisions is the break-even abstract it enables you to find oneself with great accuracy whether or not your idea is a profitable one. Best of all, you can use this tool to evaluate every product or service you offer. The break- even catamenia is the starting point for CVP analysis because before a company can earn profits it must first cover all of its variable and persistent cost.What is CVP?Cost-volume-profit analysis is a tool that can be utilized by business managers to make better business decisions. Among the tools in a business managers decision-making arsenal, CVP analysis provides one of the more detailed and objective ways by which a manager can prise and even predict the course of business for the company and its employees. Another major benefit of CVP analysis is that it provides a detailed snapshot of company activity. This includes everything from the costs needed to produce a product to the amount of the product produced. This helps managers determine, very specifically, what the future will hold if variables be altered.For instance, transportation expenses and costs for materials can change. These variable costs can affect the bottom line. CVP analysis allows the manager to plug in variable costs to build an idea of future performance, within a range of possibilities. This, however, can be a disadvantage to managers who are not detail-oriented and precise with the data they record. Projections based on cost estimates, rather than precise numbers, can result in inaccurate projections. Cost Volume Profit (CVP) AnalysisModel says(Sales variable costs) Fixed costs = Operating income TC = VX + F* If the s ale minus all costs (variable and fixed), we can make a profit * The contribution margin (revenue variable costs) helps to pay fixed costs * The contribution margin = fixed costs break