Final answer:
CVP analysis focuses on how profits are affected by selling price per unit, variable cost per unit, fixed costs, sales volume, and the mix of products sold.
Step-by-step explanation:
CVP analysis, which stands for Cost-Volume-Profit analysis, focuses on how profits are affected by five factors: selling price per unit, variable cost per unit, fixed costs, sales volume, and the mix of products sold.
1. Selling price per unit: This refers to the price at which the firm sells each unit of its product or service. A higher selling price per unit will result in higher profits, while a lower selling price per unit will result in lower profits.
2. Variable cost per unit: This refers to the cost incurred by the firm for each unit of its product or service that varies with the level of production. Examples of variable costs include raw materials, direct labor, and direct expenses. A lower variable cost per unit will result in higher profits, while a higher variable cost per unit will result in lower profits.
3. Fixed costs: These are costs that do not vary with the level of production, such as rent, salaries, and utilities. Fixed costs are incurred regardless of the sales volume. Higher fixed costs will result in lower profits, while lower fixed costs will result in higher profits.
4. Sales volume: This refers to the number of units of the firm's product or service sold. Higher sales volume will result in higher profits, while lower sales volume will result in lower profits.
5. Mix of products sold: If a firm sells multiple products or services and the profit margins vary among these products, the mix of products sold can affect overall profits. Selling more of the products with higher profit margins will result in higher overall profits.