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The analytical technique used to study the behavior of profit in response to the changes in volume, costs and prices is called the Cost-Volume-Profit Analysis.  It is a device used to determine the usefulness of the profit planning process of the firm.  The entire field of profit planning has become associated with the Cost-Volume-Profit Analysis inter relationships.  It should be noted that the formal profit planning and control also involves the use of budgets and other forecasts.

As a starting point in profit planning, Cost-Volume-Profit Analysis helps to determine the minimum sales volume to avoid losses and the sales volume at which the profit goal of the firm will be achieved.  As an ultimate objective, it helps management in seeking the most profitable combination of costs and volume.  A dynamic managements, uses Cost-Volume-Profit Analysis to predict and evaluate the implications of its short-run decisions about fixed costs, variable costs, volume and selling price for its profit plans on a continuous basis.

The Cost-Volume-Profit Analysis is of immense utility to management as it provides an insight into the effects and inter-relationship of factors          which influence profits of the firm.  It is with the help of the Cost-Volume-Profit Analysis that the finance executive is enabled to present facts and figures in accurate reports and easily understood charts to management for action.

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The study of relationship between the Cost-Volume-Profit is a widely technique is Break-even analysis.  The Break-even analysis means where total cost equals to selling price. It portrays the relationship between cost of production, Volume of production and the sales file.

             It may be added here that CVP analysis is also popularly, although not very correctly, designed as “Break-even Analysis”. The difference between the two terms is very narrow. CVP analysis includes the entire gamut of profit planning, while above, the technique of break-even analysis is one of the technique of break-even analysis is so popular for studying CVP analysis that the two terms are used as synonymous terms. For the purpose of this study, we have also not made any distinction   between these two terms.

         scope of the study;      

       

           Cost- Volume-profit (CVP) Analysis is an important tool of profit planning. It provides information about the following matters. 

1.      The behavior of cost in relation to volume.

2.      Volume of production or sales, where the business will break even.

3.      Sensitivity of profit for a projected sales volume.

4.      Amount of production and sales for a target profit level.

Quantity of production and sales for a target level.