Question

A CVP income statement is frequently prepared for internal use by management. Describe the features of the CVP income statement that make it more useful for management decision-making than the traditional income statement that is prepared for external users.

Answer 1

A cost volume profit (CVP) income statement separates variable costs and fixed costs. That way management has a better view of how variable costs affect the total cost structure and determines the break even point. It is specially useful when sales volume varies during different months.