Melissa - Week 6 Assignment - Cost, Volume, and Profit Formulas

Melissa - Week 6 Assignment - Cost, Volume, and Profit Formulas

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Melissa Krol - Week 6 Assignment – Cost, Volume, and Profit Formulas 1 Week 6 Assignment – Cost, Volume, and Profit Formulas Melissa Krol ACC – 220 March 6, 2010 Instructor: Milton Robinson Axia College of University of Phoenix
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Melissa Krol - Week 6 Assignment – Cost, Volume, and Profit Formulas 2 Week 6 Assignment – Cost, Volume, and Profit Formulas Cost-volume-profit analysis is the study of the effects of changes in volume and cost on a company’s profits. The basic components are Volume or level of activity, unit selling prices, variable cost per unit, total fixed costs, and sales mix. Cost-volume-profit analysis considers the interrelationships among these components. There are five assumptions that bring about Cost- volume-profit analysis. 1. The performance of both cost and revenues is linear during the relevant scope of the activity index. 2. Every cost can be classified with reasonable accuracy as either fixed or variable. 3. Changes in activity are the only reasons that have an effect on costs. 4. Every unit produced is sold. 5. When more than one kind of product is sold, the sales mix remains regular. That is, the percentage that each product represents in sales stays the same. Sales mix complicates cost-volume-profit analysis because different products have different cost associations. The results of cost-volume-profit analysis may be incorrect if these five assumptions are invalid.
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This note was uploaded on 09/06/2010 for the course ACC 220 acc-220 taught by Professor Unknown during the Spring '10 term at University of Phoenix.

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Melissa - Week 6 Assignment - Cost, Volume, and Profit Formulas

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