Main benefits or advantages of cost volume profit (CVP) analysis can be studied as follows:
1. Decision Making
CVP analysis helps the management to make sound decision regarding distribution channel, make or buy decision, pricing, production method etc. by showing the relationship between cost, volume and profit.
2. Fair Pricing
Cost volume profit (CVP) analysis helps to fix optimum price of the product and services by comparing the competitor's product price.
3. Determination Of Break Even Point
CVP analysis helps to calculate the break even point at which total revenues are equal to total costs.
4. Determination Of Margin Of Safety
CVP analysis helps to determine the margin of safety (position above the break even point).
5. Profit Planning
CVP analysis assists management in profit planning by estimating the profit at different output levels.
CVP analysis is an effective tool to control unnecessary production and distribution costs.
7. Budgeting
Management can prepare budget on the basis of CVP analysis because it provides relevant data and information about cost, volume and profit.
8. Product Selection
Cost volume profit analysis helps to select the most profitable product by analyzing the relationship between revenues and costs.
