Cost - Volume - Profit Analysis     Introduction Cost-Volume-Profit analysis is a planning tool which is extremely useful in predicting sales and profit levels given a certain cost structure (Burch, 1994). Traditional CVP analysis has been applied largely to manufacturing enterprises which have a tangible product base (e.g., furniture). However, the concept itself is applicable to service enterprises such as banking, insurance and other financial service industries. This paper will outline the basic CVP model and thereafter demonstrate its applicability and related complexities to the banking sector.   The Basics of CVP Model As mentioned earlier, Cost-Volume-Profit analysis, or breakeven analysis as it is often commonly called, is used largely in the manufacturing sector. According to Horngren and Foster (1991), the basic CVP model has the following underlying assumptions:   1. The behavior of costs and revenues is linear. 2. Selling prices are constant. 3. All costs can be divided into their fixed and variable elements. 4. Total fixed costs remain constant. 5. Total variable costs are proportional to volume. 6. Prices of production inputs (e.g., materials) are constant. 7. Efficiency and productivity are constant. 8. The analysis covers a single product or a constant sales mix. 9. Revenue and costs are being compared over a single volume base (e.g., units). 10. Volume is the only driver of costs.   Go to Look Smart for more articles at:   http://www.findarticles.com/      Back to the main website Back to the website for the United States