What is the main purpose of cost-volume-profit analysis?

The main purpose of cost-volume-profit analysis is to understand the relationship between costs, sales volume, and profits. This analytical tool helps businesses make informed decisions by illustrating how changes in cost structures, sales volumes, and pricing impact overall profitability.

By assessing these relationships, management can determine breakeven points, which indicate the level of sales needed to cover all costs. This information is crucial for setting sales targets, managing costs, and making strategic decisions regarding pricing and production levels. Additionally, cost-volume-profit analysis can aid in forecasting and evaluating how varying levels of production and sales can affect income, providing valuable insights for planning and decision-making.

The other options do not capture the essence of cost-volume-profit analysis. For example, calculating taxes focuses on financial obligations rather than profitability relationships. Monitoring employee performance relates to human resource management and not financial analysis. Evaluating investment opportunities is more aligned with capital budgeting and risk assessment rather than examining cost and revenue dynamics.