C-V-P Analysis

Date: July 20, 2008
Time: 8:00 PM
Place: Kitchen

The basic assumptions of C-V-P analysis are that variable costs will change in proportion to the change in volume of production, fixed costs remain the same, mixed costs have a fixed and a variable component, and step costs remain the same for a range of volume, but then it changes once a new level volume is reached.

Managers need to understand C-V-P analysis when deciding how much operating leverage to use. The more operating leverage, the higher the fixed costs. Once the break even point has been passed, a firm that has high operating leverage will rake in more profits than a firm w/ lower operating leverage.