ABSTRACT
When considering a decision to enter a new commercial activity (e.g.,
opening a restaurant), questions frequently posed by managers include ‘‘How
many units will we need to sell in order to breakeven?’’ and ‘‘How much will
we need to sell in order to achieve our target profit level?’’. Other questions
that sometimes arise in connection with existing activities include ‘‘What
will happen to profit if we manage to increase sales volume by 10%?’’ and ‘‘If
we increase advertising by 15%, how much more would we have to sell in
order to maintain our current level of profit?’’. This chapter outlines an
analytical approach that will enable you to answer these types of questions.
This approach is generally referred to as ‘‘cost-volume-profit’’ (CVP)
analysis.
