What is the primary goal of cost-volume-profit (CVP) analysis?

The primary goal of cost-volume-profit (CVP) analysis is to assess the relationship between costs, volume, and profits. This analytical tool helps businesses understand how changes in cost and volume affect a company's operating income and net income. By examining these relationships, management can make informed decisions regarding pricing strategies, production levels, and product mix.

CVP analysis highlights the break-even point—the level of sales at which total revenues equal total costs. This is crucial for businesses because they can use this information to understand how much they need to sell to cover their costs and where profit begins. Additionally, it aids in forecasting how changes in costs or volume impact profitability, enabling strategic planning and risk assessment.

Understanding these dynamics allows managers to set more effective sales targets, optimize resource allocation, and ultimately drive profitability. Thus, the focus on the interplay among costs, volume, and profits is at the heart of CVP analysis, making it a vital tool for decision-making in financial planning and control.