Cost, Value and Profit - 1 Accounting 220 Cost, Volume, and...

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Accounting 220 Cost, Volume, and Profit Formulas 1 Cost, Volume, and Profit Formulas Gregory Mann Axia College of University of Phoenix Acc 220
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Accounting 220 Cost, Volume, and Profit Formulas 2 Cost-volume-profit (CVP) analysis involves several components. CVP analyses are utilized in business to project the impact of changes in sales volume on that company’s costs and overall profits. It is also used to project the impact of various strategies and proposals of a company’s profits. The 5 basic components of CVP analysis are: volume or level of activity, unit selling prices, variable cost per unit, total fixed costs and sales mix. In an accurate CVP analysis, five assumptions are guidelines in proving each analysis to be valid. “The behavior of both costs and revenues is linear throughout the relevant range of the activity index. All costs can be classified with reasonable accuracy as either variable or fixed. Changes in activity are the only factors that affect costs. All units produced are sold. 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.”(“Essentials of Accounting”, 2005, chpt 6, p. 264)
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Cost, Value and Profit - 1 Accounting 220 Cost, Volume, and...

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