From the course: Accounting Foundations: Managerial Accounting
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From the course: Accounting Foundations: Managerial Accounting
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- Whether we own and operate a Thai restaurant, a movie theater or whatever our business, a knowledge of the nature of our costs is critical. Fixed and variable costs are incredibly useful in examining the relationship between our costs, our volume, the number of customers and our profits. This analysis, not surprisingly called cost volume profit or CVP analysis, is an important part of managerial accounting. CVP analysis can help managers assess the impact that a particular action will have on profitability. CVP analysis involves studying the interrelationships among revenues, costs, levels of activity and profits. A lot of what is done in management accounting involves some aspect of CVP analysis because of the tremendous potential it has to help management increase the profitability and effectiveness of an organization. To review, a cost may be classified as either fixed or variable, by the way it reacts to changes in level of activity. Think of a donut shop like Krispy Kreme or…
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