Cost, Volume, and Profit Formulas Paper

Cost, Volume, and Profit Formulas Paper - Running Head:...

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Running Head: COST, VOLUME, AND PROFIT FORMULAS 1 Cost, Volume, and Profit Formulas Sarah Jones ACC/220 5-4-2010 Robert Neely
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COST, VOLUME, AND PROFIT FORMULAS 2 Cost-volume-profit analysis is a key component to any business. This paper will discuss what each component of cost-volume-profit, contribution margins, and contribution margin ratios are. It will also explain how contribution margins and contribution margin ratios are affected by selling price increases as well as how sales can be affected by fixed cost decreases. The components of cost-volume-profit are fixed costs, variable costs, mixed costs, volume of activity, and selling price. Fixed costs are costs that remain the same under any volume of activity. For example a company’s rent/mortgage, real-estate taxes, and insurance would be considered fixed costs. Variable costs are costs that vary directly and proportionately with the level of activity. For example direct material, direct labor, cost of goods sold, and sales commission would be considered variable costs. Mixed costs are costs that have both fixed and
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Cost, Volume, and Profit Formulas Paper - Running Head:...

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