Cost volume profit (CVP) analysis is a fundamental and powerful tool in managerial accounting decision making. Mastery of the CVP concepts is critical both in terms of basic concepts as well as the ability to apply the concepts to contextually rich decision environments. Further, mere mastery of the technical tools may not be enough for high-quality decision making. The ability to evaluate, understand, and master other factors such as the underlying CVP assumptions and potential issues with those assumptions, the business context, and environment as well as other qualitative factors is critical.
These Teaching Notes are written primarily for M.B.A. and E.M.B.A. students. Suggested modifications for undergraduate Managerial or Cost Accounting students are presented at the end of each question. Questions 1–3 are designed to illustrate CVP concepts (target profit and “what if” analysis), and to have students explore the underlying CVP assumptions and identify potential issues that are derived...