Cost Volume profit analysis provides a framework within which the impact of volume changes in the short-run may be examined on profit. Cost behaviour is added as a dimension and corresponding changes in profit, break-even point, and margin of safety are observed.

Managers have to take frequent decisions which involve considerations of selling prices, variable costs, and fixed costs. Many of these decisions are a part of their planning responsibilities and have to be based on predictions about costs & revenues. The CVP relationship acquires a vital significance for the manager facing a wide spectrum of short-run decisions.