study guide 2 - Chapter 5 Cost Volume Profit Cost Behavior...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Cost Volume- Profit Cost Behavior Analysis Cost-Volume-Profit Analysis Variable costs - Basic components Fixed costs - CVP income statement Relevant range - Break-even analysis Mixed costs - Target net income Identifying variable and fixed costs - Margin of Safety -Changes in business environment Cost behavior analysis- the study of how specific costs respond to changes in the level of business activity. Variable costs - costs that vary in total directly and proportionately with changes in the activity level. If the level increases 10 percent the total variable costs will increase 10 percent and visa versa. It is also a cost that remains the same per unit at every level of activity. Fixed costs- costs that remains the same in total regardless of changes in the activity level. Examples include property taxes, insurance, rent, supervisory, salaries, and depreciation, on buildings and equipment. Total fixed costs remain constant as activity changes, it follows that fixed costs per unit vary inversely with activity: As volume increases, unit cost declines and vise versa. The trend for most manufacturers is to have more fixed costs and fewer variable costs Cost- volume Profit Analysis- the study of the affects of changes in costs and volume on a company’s profits. CVP analysis is important in profit planning. It is a critical factor us such management decisions as setting and selling prices, determining product mix, and maximizing use of production facilities. Assumptions that underlie each CVP analysis: 1. The behavior of both costs and revenues is linear throughout the relevant range of the activity index 2. costs can classified accurately as either variable or fixed 3. changes in activity are the only factors that affect costs 4. all units produced are sold 5. when more than one type of product is sold , the sales mix will remain constant. That is, the percentage that each product represents of total sales will stay the same. Sales mix complicates CVP analysis because different products will have different cost relationships. CVP income statement- classifies costs as variable or fixed and computes a contribution
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/17/2008 for the course ACCT 202 taught by Professor Kinkela during the Spring '08 term at Manhattan College.

Page1 / 5

study guide 2 - Chapter 5 Cost Volume Profit Cost Behavior...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online