WRD_ch21

# Accounting

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11-1 21-1 Cost Behavior and Cost- Volume-Profit Analysis 21

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11-2 21-2 Learning Objective 1 3-1 Describe the nature of the adjusting process. Insert Chapter Objectives Cost Behavior and Cost-Volume-Profit Analysis 1 Classify costs as variable costs, fixed costs, or mixed costs. 2 Compute the contribution margin, the contribution margin ratio, and the unit contribution margin. After studying this chapter, you should be able to: 21-2 3 Determine the break-even point and sales necessary to achieve a target profit.
11-3 21-3 Cost Behavior and Cost-Volume-Profit Analysis (continued) 4 Using a cost-volume-profit chart and a profit-volume chart, determine the break- even point and sales necessary to achieve a target profit. 21-3 5 Compute the break-even point for a company selling more than one product, the operating leverage, and the margin of safety.

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11-4 21-4 21-4 1 Classify costs as variable costs, fixed costs, or mixed costs.
11-5 21-5 Cost Behavior Cost behavior is the manner in which a cost changes as a related activity changes. Understanding the behavior of a cost depends on the following: 1 1. Identifying the activities that cause the cost to change, called activity base (or activity driver ). 1. Specifying the range of activity over which the changes in the cost are of interest. This range of activity is called the relevant range .

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11-6 21-6 Variable Costs Variable costs are costs that vary in proportion to changes in the level of activity. 1
11-7 21-7 Jason Sound Inc. produces stereo systems. The parts for the stereo system are purchased from suppliers for $10 per unit (a variable cost) and assembled by Jason Sound Inc. Jason Sound Inc. 1 This preview has intentionally blurred sections. Sign up to view the full version. View Full Document 11-8 21-8 For Model JS-12, the direct materials for the relevant range of 5,000 to 30,000 units of production are shown below. 1 11-9 21-9 Variable Cost Graphs 1 Exhibit 1 This preview has intentionally blurred sections. Sign up to view the full version. View Full Document 11-10 21-10 Total Costs$300,000 $250,000$200,000 $150,000$100,000 $50,000 10 20 0$20 $15$10 $5 0 Cost per Unit 10 20 30 Number of Units of Model JS-12 Produced Units Produced (000) Direct Materials Cost per Unit Total Direct Materials Cost 5,000 units$10 $50,000 10,000 10 l00,000 15,000 10 150,000 20,000 10 200,000 25,000 10 250,000 30,000 10 300,000 Unit Cost Compared to Total Cost 1 11-11 21-11 Fixed Costs Fixed costs are costs that remain the same in total dollar amount as the activity base changes. 1 This preview has intentionally blurred sections. Sign up to view the full version. View Full Document 11-12 21-12 Minton Inc. manufactures, bottles, and distributes perfume. The production supervisor is Jane Sovissi. She is paid$75,000 per year. The plant produces from 50,000 to 300,000 bottles of La Fleur Perfume. Minton Inc. 1
11-13 21-13 Number of Bottles of Perfume Produced Total Salary for Jane Sovissi 50,000 bottles $75,000$1.500 100,000 75,000 0.750 150,000 75,000 0.500 200,000 75,000 0.375 250,000 75,000 0.300 300,000 75,000 0.250 Salary per Bottle of Perfume Produced Fixed Versus Variable Cost of Jane Sovissi’s Salary per Bottle of Perfume 1

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11-14 21-14 Fixed Cost Graphs 1 Exhibit 2
11-15 21-15 Total Costs $150,000$125,000 $100,000$75,000 $50,000$25,000 100 200 0 Number of Bottles of Perfume Produced Unit Cost $1.50$1.25 $1.00$.75 $.50$.25 100 200 300 0 Units Produced (000) Total Salary for Jane Sovissi 50,000 bottles $75,000$1.500 100,000 75,000 0.750 150,000 75,000 0.500 200,000 75,000 0.375 Salary per Bottle of Perfume Produced 1

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