Cost-volume-profit (CVP) analysis is a way to estimate how profit will change if a company sells more or fewer units. It treats every cost as either fixed or variable and uses this formula:

Pre-Tax Profit = Revenue – Variable Costs – Fixed Costs.

Managers use it to project results at different output levels and to find the break-even point, where profit is zero. It is a planning tool, not a GAAP financial statement.

Related Lessons:

• Click Here for our lesson on Cost Accounting