8.21: Introduction to the Application of Cost-Volume-Profit Concepts
What you’ll learn how to do: Illustrate the application of cost-volume-profit concepts
Now that you have some basic knowledge of the components of CVP analysis, let’s go a bit deeper and show how we can apply those concepts to business decisions. Since slight changes in costs, sales or pricing can have a profound impact on the net profit of a company, it is important to be able to analyze the data when it is received.
The contribution margin becomes very important, as it is the amount of funds available from each product, after the variable expenses are covered, to cover the fixed costs of the company. Being able to pay the rent, utilities and administrative wages are crucial to company success!