Benefits discussed in the textbook for CVP:
Finding the break-even point
The CVP analysis help companies to find its break-even point where sales revenue was just just enough to cover costs.
Pricing
The CVP can help companies select a price that is appropriate for its market and necessary for the success of its business.
Controlling cost
Companies use their CVP analysis to see if their costs are too high for their business to be successful. Evaluating a company's costs can help it save money and increase its profits. CVP can help companies to test different scenarios with cutting costs and where to reach a target profit goal by adjusting the formulas with recalculated fixed or variable costs.
Production planning
Companies can use its CVP analysis to figure out how many units to produce to meet their sales goal. Planning production can help the company reduce production and ship times, improve service and make it easier to sell its products.
Determining the safety margin
The safety margin is the difference between profit and the break-even point. A company uses its CVP analysis to determine the size of its safety margin. If the company has a large safety margin, it may be more likely to take risks, like investing or lowering the price to open up into wider markets. If its safety margin is too small, it can focus on cutting costs or increasing sales.
