Limitations of Cost-Volume-Profit (CVP) Analysis


Limitations of Cost-Volume-Profit (CVP) Analysis:

Cost volume profit (CVP) is a short run, marginal analysis: it assumes that unit variable costs and unit revenues are constant, which is appropriate for small deviations from current production and sales, and assumes a neat division between fixed costs and variable costs, though in the long run all costs are variable. For longer-term analysis that considers the entire life-cycle of a product, one therefore often prefers activity-based costing or throughput accounting.

You may also be interested in other articles from “cost volume profit relationship” chapter

  1. Contribution Margin and Basics of CVP Analysis
  2. Difference Between Gross Margin and Contribution Margin
  3. Cost Volume Profit (CVP) Relationship in Graphic Form
  4. Contribution Margin Ratio (CM Ratio)
  5. Importance of Contribution Margin
  6. Change in fixed cost and sales volume
  7. Change in variable cost and sales volume
  8. Change in fixed cost, sales price and sales volume
  9. Change in variable cost, fixed cost, and sales volume
  10. Change in regular sales price
  11. Break even point analysis (calculation of break-even point by contribution margin and equation method)
  12. Target profit analysis
  13. Margin of safety
  14. Sales Mix and Break Even with Multiple Products
  15. Cost Volume Profit (CVP) Consideration in Choosing a Cost Structure
  16. Operating Leverage and degree of operating leverage
  17. Assumptions of Cost Volume Profit (CVP) Analysis
  18. Limitations of Cost Volume Profit Analysis

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