Please post comment

CVP analysis examines the impact that changing costs have and volume have on operating profit. This method determines breakeven point and can help with short term decisions that need to be made on specific products.

Gross margin (gross profit) which is cost of goods sold subtracted from net sales. Gross margin can also be used to show the gross profit as a percentage of net sales. Contribution margin is determined by net sales minus variable product cost and variable expenses. Gross margin and contribution margin can be shown as a percentage of net sales. Differently than the similarities, contribution margin allows for each individual cost to be determined (fixed/variable). Based on this information, contribution margin would be more useful when it comes to CVP analysis.

A company would use budgeted costs rather than actual costs to determine direct labor rates because it may be difficult to trace overtime labor rates and bonuses. The difficulty tracing direct labor costs to jobs as they are completed allows for a company to use budgeted costs instead of annu