Uses of Cost-Volume-Profit Analysis

V.P. analysis helps in forecasting costs and profits as a result of change in volume.
It helps fixing a sales volume level to earn or cover given revenue, return on capital employed, or rate of dividend.
It assists determination of effect of change in volume due to plant expansion or acceptance of an order, with or without increase in costs or in other words a quantum of profit to be obtained can be determined with change in volume of sales.
V.P. analysis helps in determining relative profitability of each product, line, and project or profit plan.
Through cost volume-profit analysis inter-firm comparison of profitability can be done intelligently.
It helps in determining cash requirements at a desired volume of output, with the help of cash break-even charts.
Break-even analysis emphasizes the importance of capacity utilization for achieving economy.
From break-even analysis during severe recession, the comparative effects of a shut down or continued operation at a loss is indicated.
The effect on total cost of a change in the fixed over-head is more clearly demonstrated through break-even analysis and cost- volume-profit charts.
The conditions of a business such as profit potentialities, requirements of capital, financial stability and incidence of fixed and variable costs can be gauged from a study of the position of the break-even point and the angle of incidence in the break-even chart.

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