What is the main objective of cost-volume-profit analysis?

The primary objective of cost-volume-profit analysis is to understand how costs and sales volume interact to impact overall profit. This analysis allows businesses to assess how changes in production levels or sales volume influence their profitability by examining the relationships between fixed and variable costs, sales price, and the contribution margin. By doing so, organizations can make informed decisions about pricing strategies, production levels, and cost management to optimize profitability.

The analysis provides valuable insights for breakeven points, which indicate the number of units that must be sold to cover total costs. It also helps in forecasting how shifts in cost structures or sales volume would affect financial performance, thereby facilitating strategic planning and financial forecasting. This understanding is crucial for management to evaluate the feasibility of different business scenarios, including new product launches or pricing adjustments.