Mixed costs should be classified in CVP analysis using the break

Mixed costs should be classified in CVP analysis using the break

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Mixed costs should be classified in CVP analysis using the break-even analysis. A key relationship in CVP analysis is the level of activity at which total revenues equal total costs. This level of activity is called the break-even point. At this volume of sales, the company will realize no income and will suffer no loss. The process of finding the break- even point is called break-even analysis. I do not agree that cost-volume-profit analysis is based entirely on unit costs. There are other components considered which include volume or level of activity, total fixed costs, and sales mix. In order to plot the break-even point, you must first plot the total revenue line, the total cost line, and the total fixed cost line. Plot the total revenue line linear, starting at the zero activity level. Plot the revenue line at the total units sold to the total of the revenue.
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Unformatted text preview: Next, plot the total fixed costs using a horizontal line. Plot the total fixed cost line at $200,000. Next, plot the total cost line. Plot this at the fixed cost line at zero activity. It increases by the variable cost at each level of activity. On the graph, the amount of the variable cost can be derived from the difference between the total cost and fixed cost lines at each level of activity. Determine the break-even point from the intersection of the total cost line and the total revenue line. The break-even point in dollars is found by drawing a horizontal line from the break-even point to the vertical axis. The break-even point in units is found by drawing a vertical line from the break-even point to the horizontal axis....
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