Cost–volume–profit analysis

This break-even point can be an initial examination that precedes a more detailed CVP analysis.

In more advanced treatments and practice, costs and revenue are nonlinear, and the analysis is more complicated, but the intuition afforded by linear CVP remains basic and useful.

The assumptions of the CVP model yield the following linear equations for total costs and total revenue (sales): These are linear because of the assumptions of constant costs and prices, and there is no distinction between units produced and units sold, as these are assumed to be equal.

Note that when such a chart is drawn, the linear CVP model is assumed, often implicitly.

For longer-term analysis that considers the entire life-cycle of a product, one therefore often prefers activity-based costing or throughput accounting.

Segregation of total costs into its fixed and variable components is always a daunting task to do.

Fixed costs are unlikely to stay constant as output increases beyond a certain range of activity.

Aside from volume, other elements like inflation, efficiency, capacity and technology impact on costs.

Impractical to assume sales mix remain constant since this depends on the changing demand levels.