Why is "Using the old contribution after a price/cost change" a common mistake in Cost–Volume–Profit Analysis?

Why it happens: Forgetting to recompute it. How to avoid it: After ANY change, recompute contribution per unit FIRST, then break-even/profit. Source: 9706 Examiner Reports

Why is "Holding volume constant when a price change would change demand" a common mistake in Cost–Volume–Profit Analysis?

Why it happens: Ignoring the demand response. How to avoid it: Use the realistic volume at the new price; a higher price usually reduces demand. Source: 9706 Examiner Reports

Why is "Using a simple (not weighted) average contribution" a common mistake in Cost–Volume–Profit Analysis?

Why it happens: Ignoring the mix proportions. How to avoid it: Weight each product's contribution by its share of the mix before averaging. Source: 9706 Examiner Reports

Why is "Thinking a fixed-cost change alters contribution per unit" a common mistake in Cost–Volume–Profit Analysis?

Why it happens: Confusing fixed and variable changes. How to avoid it: Fixed-cost changes move break-even but leave contribution per unit unchanged. Source: 9706 Examiner Reports

Why is "Treating CVP results as exact" a common mistake in Cost–Volume–Profit Analysis?

Why it happens: Trusting the linear model. How to avoid it: CVP assumes linearity, constant mix and all output sold — treat the figures as approximate. Source: 9706 Examiner Reports

Why is "Giving only the arithmetic in a decision question" a common mistake in Cost–Volume–Profit Analysis?

Why it happens: Stopping at the recalculation. How to avoid it: Pair the numbers with judgement — effect on demand, quality, customers, reliability of estimates. Source: 9706 Examiner Reports

Cambridge International A Levels Accounting (9706)

Cost–Volume–Profit Analysis

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Detailed Study Notes

Detailed notes on Marginal Costing for Cambridge International A Levels Accounting, covering key concepts, explanations, examples, and exam-focused revision points.

Cost-Volume-Profit (CVP) Analysis — Cambridge AS & A Level Accounting 9706 Study Notes (2026-2028)

Putting it all together. CVP analysis uses contribution to study how costs, output (volume) and profit interact — including 'what-if' changes in price, cost or volume, the effect of a change in sales mix, and the assumptions that limit it.

At a glance

CVP analysis studies how cost, volume and profit change together, using contribution.
Core tools: contribution, C/S ratio, break-even, margin of safety, target profit (from earlier subtopics).
'What-if' analysis: recompute break-even/profit after a change in price, variable cost, fixed cost or volume.
A price rise lifts contribution per unit → lower break-even (if volume holds).
A fixed-cost rise raises break-even; a variable-cost rise lowers contribution → higher break-even.
Sales mix matters: changing the mix changes the average contribution and so break-even.
CVP assumes linearity, constant mix and all output sold — its results are approximate.

What you’ll learn

Mapped to the Cambridge International A Level 9706 syllabus (2026-2028).

2.2.3 — Apply cost-volume-profit (CVP) analysis to evaluate the effect of changes in cost, volume and price on profit.
2.2.3 — Analyse the effect of a change in sales mix.
2.2.3 — Understand the assumptions and limitations of CVP analysis.

What CVP analysis is

It studies how cost, volume and profit move together, built on contribution.

Cost-volume-profit (CVP) analysis examines how a business's profit responds to changes in:

cost (variable cost per unit, fixed costs),
volume (output/sales level), and
price (selling price per unit).

It is built entirely on contribution and the tools you already know:

$\text{Profit} = (\text{Units} \times \text{Contribution per unit}) - \text{Fixed costs}$

From this single relationship you can find the break-even point, the margin of safety, the output for a target profit, and the profit at any volume — and, crucially, how each of these changes when price, cost or volume changes. CVP analysis is therefore a key planning and decision tool.

CVP analysis links cost, volume, price and profit.
Built on contribution: profit = (units × contribution) − fixed costs.
Uses break-even, margin of safety and target profit.
A core planning and decision-making tool.

See the full worked example for cost–volume–profit analysis →

'What-if' analysis

Recompute contribution, break-even and profit after a change.

The power of CVP analysis is answering 'what-if' questions. When something changes, recompute the contribution per unit first, then the break-even, margin of safety or profit. Typical changes:

Change	Effect on contribution	Effect on break-even
Selling price ↑	Contribution per unit ↑	Break-even ↓ (if volume holds)
Variable cost ↑	Contribution per unit ↓	Break-even ↑
Fixed cost ↑	(no change to contribution)	Break-even ↑
Volume ↑ (above break-even)	(no change per unit)	Profit ↑

Example. Price rises from $25 to $28; variable cost stays $15. New contribution = $13 (was $10). With fixed costs $30,000, new break-even = 30,000 ÷ 13 ≈ 2,308 units (was 3,000) — a price rise lowers break-even.

Watch the knock-on effects: a higher price may reduce demand, and a cost saving may affect quality — so CVP gives the arithmetic, but the answer should also weigh realistic behaviour.

For any change, recompute contribution per unit first.
Price ↑ → contribution ↑ → break-even ↓ (if volume holds).
Variable cost ↑ or fixed cost ↑ → break-even ↑.
Consider knock-on effects (a price rise may cut demand).

See the full worked example for cost–volume–profit analysis →

Sales mix

With several products, the average contribution depends on the mix.

Most businesses sell more than one product, each with its own contribution. The sales mix is the proportion in which they are sold. Because products contribute differently, the average contribution (and so break-even) depends on the mix:

Selling more of a high-contribution product raises the average contribution → lower break-even and higher profit.
Selling more of a low-contribution product does the opposite.

A common method is the weighted-average contribution per unit (or per $ of sales), using the mix as weights:

$\text{Weighted-average contribution} = \frac{\sum(\text{Contribution} \times \text{units in mix})}{\text{Total units in mix}}$

Then break-even (in mix units) = fixed costs ÷ weighted-average contribution, split back into each product using the mix. A change in mix can change break-even and profit even if total units sold are the same — so the mix is itself a decision variable.

Sales mix = the proportions in which products are sold.
Average contribution depends on the mix.
More of a high-contribution product → lower break-even, higher profit.
Use a weighted-average contribution to find break-even with a fixed mix.

See the full worked example for cost–volume–profit analysis →

Assumptions and limitations

CVP shares break-even's assumptions — linearity, constant mix, all output sold.

CVP analysis rests on the same assumptions as break-even analysis, which are also its limitations:

Linear cost and revenue — constant selling price and variable cost per unit (ignores bulk discounts, overtime, price cuts to sell more).
Fixed costs constant within the range (they step up beyond capacity).
Constant sales mix when there are several products.
All output is sold — no change in inventory.
A short-term, single-period view that ignores time and non-financial factors.

So CVP analysis is excellent for quick planning and 'what-if' questions, but its results are approximate. A good evaluation states which assumption is unrealistic for the scenario, and pairs the numbers with business judgement (effect on demand, quality, customer relationships).

Assumes linear costs/revenue (constant price and variable cost per unit).
Assumes constant fixed costs and constant sales mix.
Assumes all output is sold (no inventory change).
Results are approximate — pair the numbers with judgement.

Quick recap

CVP analysis links cost, volume, price and profit through contribution.
Profit = (units × contribution per unit) − fixed costs.
For a change, recompute contribution first, then break-even/profit.
Price ↑ → break-even ↓; variable or fixed cost ↑ → break-even ↑.
Sales mix affects the average contribution and so break-even and profit.
CVP assumes linearity, constant mix and all output sold — results are approximate.

Memorise this

Verbatim phrases and definitions Cambridge mark schemes credit.

Profit = (units × contribution per unit) − fixed costs.
Price ↑ → contribution ↑ → break-even ↓ (if volume holds); cost ↑ → break-even ↑.
Sales mix changes the weighted-average contribution and so break-even.
CVP assumes linearity, constant mix and all output sold — approximate.

How it’s examined

Tested on Paper 4: recalculate break-even, margin of safety or profit after a change in price/cost/volume, analyse a change in sales mix, and discuss the assumptions (commonly [6-12] marks). Examiner reports reward candidates who pair the recalculation with a judgement on realistic demand/behaviour, and penalise treating CVP figures as exact.

Sources: Cambridge International AS & A Level Accounting 9706 syllabus (2026-2028); 9706 Paper 4 past papers & mark schemes, 2022-2024; 9706 Examiner Reports, 2022-2024. Last reviewed 2026-06-18.

Take this whole topic with you

Step-by-step worked examples — Cost–Volume–Profit Analysis

Step-by-step solutions to past-paper-style questions on cost–volume–profit analysis, written exactly the way a tutor would explain them at the board.

Question type:

1Profit at a given volume (3 marks)
Getting startedDirect calculation• 9706 Paper 4 style• CVP, AO2
Question
Contribution is $10 per unit; fixed costs$ 30,000. Calculate the profit at 5,000 units. (3 marks)
Step-by-step solution
1. Step 1
  Profit = (units × contribution) − fixed costs = (5,000 × 10) − 30,000.
2. Step 2
  = 50,000 − 30,000.
3. Step 3
  = $20,000.
Answer
Profit = $20,000.
Examiner tip
The master CVP equation: profit = (units × contribution) − fixed costs.
2Effect of a price rise on break-even (5 marks)
Building confidenceMulti-step problem• what-if, AO2
Question
Price $25, variable cost$ 15, fixed costs $30,000. The price rises to$ 28 (volume unchanged). Recalculate the break-even point and comment. (5 marks)
Step-by-step solution
1. Step 1
  Old contribution = 25 − 15 = $10; old break-even = 30,000 ÷ 10 = 3,000 units.
2. Step 2
  New contribution = 28 − 15 = $13.
3. Step 3
  New break-even = 30,000 ÷ 13 ≈ 2,308 units (round up to be safe).
4. Step 4
  The higher price raises contribution and so lowers break-even (from 3,000 to ~2,308 units).
Answer
Break-even falls from 3,000 to ~2,308 units.
Examiner tip
Recompute contribution FIRST, then break-even. A price rise lowers break-even if volume holds.
3Effect of a variable-cost rise (5 marks)
Building confidenceMulti-step problem• what-if, AO2
Question
Price $40, variable cost$ 24, fixed costs $96,000. The variable cost rises to$ 28. Recalculate the break-even point. (5 marks)
Step-by-step solution
1. Step 1
  Old contribution = 40 − 24 = $16; old break-even = 96,000 ÷ 16 = 6,000 units.
2. Step 2
  New contribution = 40 − 28 = $12.
3. Step 3
  New break-even = 96,000 ÷ 12 = 8,000 units.
4. Step 4
  The higher variable cost cuts contribution and raises break-even (6,000 → 8,000 units).
Answer
Break-even rises from 6,000 to 8,000 units.
Examiner tip
A variable-cost rise reduces contribution and raises break-even.
4Effect of a fixed-cost rise (4 marks)
Building confidenceMulti-step problem• what-if, AO2
Question
Contribution $20 per unit; fixed costs$ 100,000, rising to $130,000 after renting new premises. Recalculate the break-even point. (4 marks)
Step-by-step solution
1. Step 1
  Old break-even = 100,000 ÷ 20 = 5,000 units.
2. Step 2
  New break-even = 130,000 ÷ 20 = 6,500 units.
3. Step 3
  Higher fixed costs raise break-even (contribution per unit is unchanged).
Answer
Break-even rises from 5,000 to 6,500 units.
Examiner tip
Fixed-cost changes move break-even but do not change contribution per unit.
5Target profit after a change (5 marks)
StretchMulti-step problem• what-if, target profit, AO2
Question
After a price rise, contribution is $13 per unit and fixed costs are$ 30,000. How many units are needed for a target profit of $19,500? (5 marks)
Step-by-step solution
1. Step 1
  Units = (fixed costs + target profit) ÷ contribution.
2. Step 2
  = (30,000 + 19,500) ÷ 13.
3. Step 3
  = 49,500 ÷ 13 = 3,808 units (round up).
Answer
≈3,808 units.
Examiner tip
Use the new contribution after the change; add the target profit to fixed costs.
6Price rise with a demand fall (6 marks)
StretchMulti-step problem• what-if, AO3
Question
Currently: price $20, variable cost$ 12, sales 10,000 units, fixed costs $50,000. A price rise to$ 23 is expected to cut sales to 8,000 units. Should the price be raised? (6 marks)
Step-by-step solution
1. Step 1
  Now: contribution = 20 − 12 = $8; total contribution = 8 × 10,000 = 80,000; profit = 80,000 − 50,000 = $30,000.
2. Step 2
  After: contribution = 23 − 12 = $11; total contribution = 11 × 8,000 = 88,000; profit = 88,000 − 50,000 = $38,000.
3. Step 3
  Profit rises by $8,000 (30,000 → 38,000).
4. Step 4
  Raise the price — despite lower volume, the higher contribution per unit more than compensates.
5. Step 5
  But check the demand estimate is reliable and consider the effect on market share/customers.
Answer
Raise the price: profit rises from $30,000 to$ 38,000.
Examiner tip
CVP must use the REALISTIC volume at the new price — don't hold volume constant when it would change.
7Weighted-average contribution (5 marks)
StretchMulti-step problem• sales mix, AO2
Question
Two products are sold in the ratio 3:1 (A:B). Contribution: A $12, B$ 20. Calculate the weighted-average contribution per unit. (5 marks)
Step-by-step solution
1. Step 1
  In every 4 units, 3 are A and 1 is B.
2. Step 2
  Total contribution per mix = (3 × 12) + (1 × 20) = 36 + 20 = $56.
3. Step 3
  Weighted-average contribution = 56 ÷ 4 = $14 per unit.
Answer
Weighted-average contribution = $14 per unit.
Examiner tip
Weight each product's contribution by its share of the mix, then divide by total mix units.
8Break-even with a sales mix (6 marks)
StretchMulti-step problem• sales mix, break-even, AO2
Question
Using the weighted-average contribution of $14 per unit (mix 3:1 A:B) and fixed costs of$ 70,000, calculate the total break-even units and how many of each product. (6 marks)
Step-by-step solution
1. Step 1
  Break-even (mix units) = fixed costs ÷ weighted-average contribution = 70,000 ÷ 14 = 5,000 units.
2. Step 2
  Split by the 3:1 mix: A = 5,000 × 3/4 = 3,750 units; B = 5,000 × 1/4 = 1,250 units.
3. Step 3
  Check: (3,750 × 12) + (1,250 × 20) = 45,000 + 25,000 = 70,000 = fixed costs ✓.
Answer
Break-even = 5,000 units (A 3,750; B 1,250).
Examiner tip
Find total break-even with the average contribution, then split by the mix.
9Effect of a change in mix (5 marks)
StretchWord problem• sales mix, AO3
Question
A business shifts its mix towards a higher-contribution product, with total units sold unchanged. Explain the effect on break-even and profit. (5 marks)
Step-by-step solution
1. Step 1
  Shifting towards the higher-contribution product raises the weighted-average contribution per unit.
2. Step 2
  Break-even (units) = fixed costs ÷ average contribution, so a higher average lowers break-even.
3. Step 3
  For the same total units, total contribution is higher.
4. Step 4
  Fixed costs are unchanged, so profit rises.
5. Step 5
  So the mix itself is a decision variable — selling 'better' products improves results even at the same volume.
Answer
Higher-contribution mix → higher average contribution → lower break-even and higher profit.
Examiner tip
Mix changes affect results even when total units are constant.
10Limitations of CVP analysis (5 marks)
StretchWord problem• limitations, AO3
Question
Explain two assumptions that limit the reliability of CVP analysis for a multi-product business. (5 marks)
Step-by-step solution
1. Step 1
  Constant sales mix: CVP assumes the mix is fixed, but in reality it varies, changing the average contribution and break-even.
2. Step 2
  Linearity: it assumes constant selling price and variable cost per unit, ignoring bulk discounts/overtime, so the relationships are really curved.
3. Step 3
  (Also: fixed costs step up beyond capacity; all output assumed sold.)
4. Step 4
  These mean CVP results are approximate and should be backed by judgement.
Answer
Constant sales mix and linearity (constant price/variable cost) are both unrealistic, so results are approximate.
Examiner tip
Name assumptions and explain WHY they limit reliability for the scenario.

Model Answers — Cost–Volume–Profit Analysis

High-scoring sample answers for cost–volume–profit analysis on the Cambridge IGCSE paper, with examiner-style notes mapping each response to the mark scheme and assessment objectives.

Question 1
9706 Paper 4 style3 marks
Q (3 marks). Contribution is $15 per unit and fixed costs are$ 90,000. Calculate the profit at 8,000 units.
Model answer
Profit = (units × contribution) − fixed costs = (8,000 × 15) − 90,000 = 120,000 − 90,000 = $30,000.
Why this scores
Marking (point-based, 3). Total contribution $120,000 (1); profit$ 30,000 (2).
Question 2
9706 Paper 4 style4 marks
Q (4 marks). Price $30, variable cost$ 18, fixed costs $72,000. The price rises to$ 34 with volume unchanged. Recalculate the break-even point and state the effect.
Model answer
Old contribution = 30 − 18 = $12; old break-even = 72,000 ÷ 12 = 6,000 units. New contribution = 34 − 18 = $16; new break-even = 72,000 ÷ 16 = 4,500 units. The price rise raises contribution and lowers break-even (6,000 → 4,500 units).
Why this scores
Marking (point-based, 4). New contribution $16 (1); new break-even 4,500 (2); effect (1).
Question 3
9706 Paper 4 style4 marks
Q (4 marks). Price $50, variable cost$ 30, fixed costs $120,000. The variable cost rises to$ 35. Recalculate the break-even point in units and revenue.
Model answer
New contribution = 50 − 35 = $15. Break-even (units) = 120,000 ÷ 15 = 8,000 units. C/S ratio = 15 ÷ 50 = 0.3; break-even revenue = 120,000 ÷ 0.3 = $400,000 (or 8,000 × $50).
Why this scores
Marking (point-based, 4). New contribution $15 (1); 8,000 units (2);$ 400,000 revenue (1).
Question 4
9706 Paper 4 style4 marks
Q (4 marks). Contribution is $25 per unit and fixed costs are$ 150,000. The business rents extra premises, raising fixed costs to $200,000. Recalculate the break-even point and the margin of safety if sales are 9,000 units.
Model answer
New break-even = 200,000 ÷ 25 = 8,000 units. Margin of safety = 9,000 − 8,000 = 1,000 units (≈ 11.1% of sales).
Why this scores
Marking (point-based, 4). Break-even 8,000 (2); margin of safety 1,000 units (2). Contribution per unit unchanged.
Question 5
9706 Paper 4 style6 marks
Q (6 marks). Currently: price $24, variable cost$ 14, sales 12,000 units, fixed costs $72,000. A price rise to$ 27 is expected to reduce sales to 9,500 units. Evaluate whether the business should raise the price.
Model answer
Now: contribution = 24 − 14 = $10; total contribution = 10 × 12,000 = 120,000; profit = 120,000 − 72,000 = $48,000. After the rise: contribution = 27 − 14 = $13; total contribution = 13 × 9,500 = 123,500; profit = 123,500 − 72,000 = $51,500. Profit rises by $3,500, so on the figures the business should raise the price. However, this depends on the demand estimate being accurate; if sales fall further than expected, profit could drop. The business should also weigh the effect on market share and customer goodwill, and whether competitors will follow.
Why this scores
Marking (point-based with judgement, 6). Current profit $48,000 (2); new profit$ 51,500 (2); recommend raise + caveat on demand/market (2).
Question 6
9706 Paper 4 style6 marks
Q (6 marks). Products X and Y are sold in the ratio 2:3. Contribution: X $18, Y$ 8. Fixed costs are $66,000. Calculate the weighted-average contribution per unit and the total break-even units, split by product.
Model answer
In every 5 units, 2 are X and 3 are Y. Weighted-average contribution = [(2 × 18) + (3 × 8)] ÷ 5 = (36 + 24) ÷ 5 = 60 ÷ 5 = $12 per unit. Total break-even = 66,000 ÷ 12 = 5,500 units. Split 2:3 → X = 5,500 × 2/5 = 2,200 units; Y = 5,500 × 3/5 = 3,300 units. (Check: (2,200 × 18) + (3,300 × 8) = 39,600 + 26,400 = 66,000 ✓.)
Why this scores
Marking (point-based, 6). WAC $12 (2); total break-even 5,500 (2); split X 2,200 / Y 3,300 (2).
Question 7
9706 Paper 4 style4 marks
Q (4 marks). Explain how a shift in the sales mix towards a higher-contribution product affects the break-even point and profit, if total units sold stay the same.
Model answer
Shifting towards the higher-contribution product raises the weighted-average contribution per unit. Since break-even = fixed costs ÷ average contribution, a higher average lowers the break-even point. For the same total units, total contribution is higher, and as fixed costs are unchanged, profit increases.
Why this scores
Marking (point-based, 4). Average contribution rises (1); break-even falls (1-2); profit rises (1-2).
Question 8
9706 Paper 4 style6 marks
Q (6 marks). Discuss the assumptions and limitations of cost-volume-profit analysis.
Model answer
1. Linearity. CVP assumes the selling price and variable cost per unit are constant, so cost and revenue are straight lines. In reality bulk discounts, overtime and price cuts to sell more make these relationships curved, so results are only approximate. 2. Constant fixed costs. Fixed costs are assumed constant, but they step up beyond capacity (extra premises/supervisors). 3. Constant sales mix. For a multi-product business CVP assumes a fixed mix; if the mix changes, the average contribution and break-even change. 4. All output sold. It assumes no change in inventory — everything produced is sold. Conclusion: CVP is a useful, quick planning and 'what-if' tool, but it is short-term and approximate. Managers should treat its figures with caution and combine them with business judgement (demand response, quality, customer relationships).
Why this scores
Marking (point-based with judgement, 6). Any three assumptions explained (~4-5); balanced conclusion on usefulness (~1-2).
Question 9
9706 Paper 4 style4 marks
Q (4 marks). After a cost saving, contribution is $18 per unit and fixed costs are$ 108,000. Calculate the units needed for a target profit of $45,000.
Model answer
Units = (fixed costs + target profit) ÷ contribution = (108,000 + 45,000) ÷ 18 = 153,000 ÷ 18 = 8,500 units.
Why this scores
Marking (point-based, 4). Add target to fixed costs (2); 8,500 units (2).
Question 10
9706 Paper 4 style3 marks
Q (3 marks). Explain what is meant by cost-volume-profit (CVP) analysis and give one use of it.
Model answer
CVP analysis studies how a business's profit changes as its costs, volume (output) and selling price change, using contribution. One use is 'what-if' planning — for example, calculating the new break-even point or profit if the selling price, variable cost or fixed costs change.
Why this scores
Marking (point-based, 3). Definition — links cost/volume/profit via contribution (2); a use (1).

Key Formulae — Cost–Volume–Profit Analysis

The formulae you need to memorise for cost–volume–profit analysis on the Cambridge IGCSE paper, with every variable defined in plain English and a note on when to use it.

Profit (CVP equation)
$Profit = (Units \times Contribution\ per\ unit) - Fixed\ costs$
$Units$
units sold
$Contribution per unit$
selling price − variable cost
$Fixed costs$
total fixed costs
When to use
To find profit at any volume, or after a change in price/cost.
Example
(5,000 × 10) − 30,000 = $20,000.
Break-even (units)
$Break\text{-}even = \frac{Fixed\ costs}{Contribution\ per\ unit}$
$Fixed costs$
total fixed costs
$Contribution per unit$
recompute after any price/cost change
When to use
To recalculate break-even after a 'what-if' change.
Example
30,000 ÷ 13 ≈ 2,308 units.
Weighted-average contribution per unit
$WAC = \frac{\sum(Contribution \times units\ in\ mix)}{Total\ units\ in\ mix}$
$Contribution$
contribution per unit of each product
$units in mix$
each product's share of the sales mix
When to use
To find break-even for a multi-product business with a fixed mix.
Example
[(3×12)+(1×20)] ÷ 4 = $14.

Key Definitions and Keywords — Cost–Volume–Profit Analysis

Definitions to memorise and the exact keywords mark schemes credit for cost–volume–profit analysis answers — sharpened from recent examiner reports for the 2026 Cambridge IGCSE sitting.

Cost-volume-profit (CVP) analysis
Examiner keyword
The study of how profit changes with cost, volume and price, using contribution.
'What-if' analysis
Examiner keyword
Recalculating break-even, margin of safety or profit after a change in price, cost or volume.
Sales mix
Examiner keyword
The proportions in which a multi-product business sells its products; it affects the average contribution.
Weighted-average contribution
Examiner keyword
The average contribution per unit across the sales mix, used to find multi-product break-even.
Contribution
Examiner keyword
Selling price − variable cost; the engine of all CVP calculations.
Break-even point
Output where total contribution equals fixed costs (profit = 0).
Linearity assumption
Examiner keyword
The assumption that selling price and variable cost per unit are constant, making CVP results approximate.

Common Mistakes and Misconceptions — Cost–Volume–Profit Analysis

The traps other students keep falling into on cost–volume–profit analysis questions — taken from recent Cambridge IGCSE examiner reports and mark schemes — and how to avoid them.

✕Using the old contribution after a price/cost change
9706 Examiner Reports
Why it happens
Forgetting to recompute it.
How to avoid it
After ANY change, recompute contribution per unit FIRST, then break-even/profit.
✕Holding volume constant when a price change would change demand
9706 Examiner Reports
Why it happens
Ignoring the demand response.
How to avoid it
Use the realistic volume at the new price; a higher price usually reduces demand.
✕Using a simple (not weighted) average contribution
9706 Examiner Reports
Why it happens
Ignoring the mix proportions.
How to avoid it
Weight each product's contribution by its share of the mix before averaging.
✕Thinking a fixed-cost change alters contribution per unit
9706 Examiner Reports
Why it happens
Confusing fixed and variable changes.
How to avoid it
Fixed-cost changes move break-even but leave contribution per unit unchanged.
✕Treating CVP results as exact
9706 Examiner Reports
Why it happens
Trusting the linear model.
How to avoid it
CVP assumes linearity, constant mix and all output sold — treat the figures as approximate.
✕Giving only the arithmetic in a decision question
9706 Examiner Reports
Why it happens
Stopping at the recalculation.
How to avoid it
Pair the numbers with judgement — effect on demand, quality, customers, reliability of estimates.

Cost–Volume–Profit Analysis

Detailed Study Notes

At a glance

What you’ll learn

Quick recap

Memorise this

How it’s examined

Take this whole topic with you

1Profit at a given volume (3 marks)

2Effect of a price rise on break-even (5 marks)

3Effect of a variable-cost rise (5 marks)

4Effect of a fixed-cost rise (4 marks)

5Target profit after a change (5 marks)

6Price rise with a demand fall (6 marks)

7Weighted-average contribution (5 marks)

8Break-even with a sales mix (6 marks)

9Effect of a change in mix (5 marks)

10Limitations of CVP analysis (5 marks)

Profit (CVP equation)

Break-even (units)

Weighted-average contribution per unit

Cost-volume-profit (CVP) analysis

'What-if' analysis

Sales mix

Weighted-average contribution

Contribution

Break-even point

Linearity assumption

✕Using the old contribution after a price/cost change

✕Holding volume constant when a price change would change demand

✕Using a simple (not weighted) average contribution

✕Thinking a fixed-cost change alters contribution per unit

✕Treating CVP results as exact

✕Giving only the arithmetic in a decision question