CVP Analysis of 2012
A critical aspect that managers must be aware of in order to make sound decisions and precise projections is the understanding of the relationships among costs, volume and the company’s profit; otherwise known as CVP analysis. CVP analysis stands for Cost-volume-profit analysis which a form of cost accounting in managerial economics. The five essential concepts underlying CVP analysis include: 1. The behavior of both costs and revenues as being linear throughout the relevant range of activity 2. Costs categorized as either fixed or variable costs 3. The only factors that change affecting costs are fluctuation in activity 4. Inventory levels will not change 5. The sales mix of products will not change
Furthermore, there are standard components that determine CVP analysis such as volume of sales, the unit selling prices, the variable cost, and fixed costs.
Sales price per unit
The sales price unit indicates the price at which each unit of inventory is sold for. Here are the following sales prices for each of the items sold at a Pizza Hut venue in 2012. Pizza $16.50
Chicken Meals $9.00
Side Dishes $3.00
Desserts $2.50
Beverages $2.00
Volume sold
The volume sold is the number of individual inventory or total sales of a company within a particular timeframe. In the case of Pizza Hut, the volume sold for the 7556 U.S locations was recorded in 2012 as: Specific Inventory | Amount sold in individual stores | Amount sold in USA | Pizza | 825,227 | 6,235,415,212 | Chicken Meals | 508,926 | 3,845,444,856 | Side Dishes | 411,708 | 3,337,545,648 | Desserts | 139,890 | 1,057,008,840 | Beverages | 721,926 | 5,454,827,856 | Total Amount Sold | 2,607,677 | 19,930,242,412 |

Variable costs
Variable costs are incurred for every unit of volume, as a result the total variable costs change according to the