Final answer:
Managers can incorporate income taxes into CVP analysis by adjusting the profit, break-even point, and considering the tax effects on pricing and volume.
Step-by-step explanation:
Incorporating income taxes into the cost-volume-profit (CVP) analysis can be done by considering the effects of taxes on the various components of the analysis. Here are a few ways a manager can incorporate income taxes into CVP analysis:
- Reduce Profit: Income taxes are deducted from the profit generated by the business. By incorporating the tax expense in the cost calculations, the profit margin can be adjusted accordingly.
- Increase Break-even Point: Taxes reduce the net income of the business, which in turn increases the break-even point. The break-even analysis can be modified to account for the tax liability.
- Determine Tax Effects on Pricing and Volume: Income taxes can affect the pricing and volume decisions in CVP analysis. Managers need to consider the impact of taxes on sales revenue and cost structure when making pricing and volume decisions.