Chapter 4 notes

# Chapter 4 notes - CHAPTER 4 NOTES cost-volume-profit(CVP...

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CHAPTER 4 NOTES cost-volume-profit (CVP) analysis : the analysis of how costs and profit change when volume changes SECTION 4.1 Variable costs : costs that change in proportion to changes in volume or activity. (if activity increases by 10 percent, variable costs are assumed to increase by 10 percent) Ex. Suppose that CodeConnect has variable production costs equal to \$91 per bar code reader. Total variable cost at a production level of 1,000 units (the measure of activity) is equal to \$91,000 (\$91 × 1,000), while total variable cost at 2,000 units is equal to \$182,000 (\$91 × 2,000) Slope = Change in Cost / Change in Units Produced = Variable Cost per Unit = 182,000 - 91,000 / 2,000 – 1,000 = 91 Fixed Costs : costs that do not change in response to changes in activity levels the amount of fixed cost per unit does change with changes in the level of activity. When activity increases, the amount of fixed cost per unit decreases because the fixed cost is spread over more units. Ex . At 1,000 units, the fixed cost per unit is \$94 (\$94,000 ÷ 1,000), whereas at 2,000 units, the fixed cost per unit is only \$47 (\$94,000 ÷ 2,000). Discretionary fixed costs : fixed costs that management can easily change in the short run (advertising, research and development, and repair and maintenance costs)

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## This note was uploaded on 02/04/2011 for the course ACG 2071 taught by Professor Lopez during the Summer '08 term at Valencia.

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Chapter 4 notes - CHAPTER 4 NOTES cost-volume-profit(CVP...

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