Question

◾What circumstances would cause a company to make a CVP analysis

If you owned a small business would you prefer variable costing or absorption costing and why

◾Explain, with an example, a constrained cost

Answer 1

1.Cost volume profit analysis is a variable costing analysis which analyses the sales and variable costs relationship through a contribution margin. Contribution margin is the difference between sales and variable costs incurred for the sales. CVP is beneficial in analysing the extra costs (variable costs) that a business will incur for selling extra units . It also is useful while determining the sales that the business will have to sell in case of anticipated profits.

As a small business owner I would prefer variable costing since it clearly demarcates between fixed and variable expenses which helps in cost analysis better.

As per Chegg Policy,the first question is answered.