Write a brief essay and explain how managers use CVP analysis to make decisions about the target prices they charge to earn profits

What will be an ideal response?

Managers need to evaluate the decisions they have about cost to ensure they can make a product that is cost effective and does not impact the organization in a negative way. Managers need to review the demand for the product or service. They use CVP analysis to compare the changes in the contribution margin when they look at the effect on selling prices, variable costs, quantities of units to the changes in the fixed costs. They choose the alternative that will result in the highest operating income. They also evaluate how the operating income could be affected if and when the original predicted data are not achieved.