Why is it necessary for companies to use Cost Volume Profit

Why is it necessary for companies to use Cost Volume Profit Analysis?

Solution

CVP analysis can help companies to find out the contribution margin which is the amount after deducting variable costs from the sales revenue. The remaining can be used to cover up all the fixed costs and after that profits will arrive.

Many companies uses CVP analysis to make informed decisions about the products or services they sell,

CVP analysis helps companies to figure out the changes in costs and volume after giving effect to net income and operating expenses. It also gives companies a strong insight into the profitability of products or services