What does cost-volume-profit (CVP) analysis describe?

Cost-volume-profit (CVP) analysis is a powerful financial tool used to understand the relationship between costs, sales volume, and profits. It focuses on how changes in costs and volume impact an organization's operating income and net income. This analysis aids management in making informed decisions regarding pricing, production levels, and product mix.

By examining the interaction between fixed and variable costs, sales price, and volume, CVP analysis provides insights into break-even points—the level of sales at which total revenue equals total costs, resulting in neither profit nor loss. Additionally, it highlights how variations in these factors will affect overall profitability, allowing businesses to forecast profits at different levels of sales activity.

While the other options touch on aspects of financial analysis, they do not fully encapsulate the comprehensive nature of CVP analysis. For instance, it goes beyond just evaluating operating income based solely on fixed costs or determining sales volume needed for profit by incorporating both cost structures and how changes in sales volume influence overall profits.