Chapter Outline

This chapter provides a comprehensive exploration of Cost-Volume-Profit (CVP) and Break-Even analyses, essential tools for understanding the relationship between costs, sales volume, and profits. Each section is designed to equip readers with the knowledge and skills to effectively perform these analyses, whether through algebraic formulas, graphical representations, or using a financial calculator.

6.1 Break-Even Analysis: This section introduces the concept of break-even analysis, a fundamental tool for determining the point at which a business neither makes a profit nor incurs a loss. It covers how to calculate the break-even point in units sold and in sales dollars.

6.2 Contribution Margin Approach: This section introduces the contribution margin, a key metric in CVP analysis that represents the portion of the selling price that contributes to the coverage of fixed costs. This part explains how to calculate the break-even point using the contribution margin approach.

6.3 Cost-Volume-Profit (CVP) Analysis: This part delivers an in-depth look at CVP analysis, which examines how changes in costs (both fixed and variable), sales volume, and price affect a company’s profit.

6.4 Break-Even Chart: This section explains how to visually represent break-even analysis using a break-even chart. It demonstrates how the chart is constructed and how it can be used to visually assess how changes in costs and sales levels impact profitability.

6.5 CVP Analysis Using a Financial Calculator: This section is tailored for readers who prefer to use technological tools, this part shows how to conduct CVP analysis efficiently with a financial calculator.

6.6 Terminology and Glossary of Symbols: This section concludes the chapter with a glossary of terms and symbols used throughout the chapter.