Week 11- Cost-volume-profit relationships

Week 11- Cost-volume-profit relationships - Week 11...

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Week 11- Cost-volume-profit Relationships COST BEHAVIOUR ANALYSIS Study of how specific costs respond to changes in the level of business activity: some change, some stay the same Helps in planning and choosing between alternatives Starts with identification of key activities and their relationships with various costs Variable Costs Vary in total and directly proportionately with changes in activity level (e.g. direct materials cost, COGS, fuel) Per-unit basis Stays the same per-unit even if activity level changes Fixed costs Remain regardless of changes in activity level Rates, taxes, rent, insurance, etc Fixed cost per unit = total cost/units of activity level 1
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Week 11- Cost-volume-profit Relationships Relevant Range Range of activity levels which business expects to operate over the period (year) Linear relationship assumed to exist between costs and activity levels within this range Variable costs per unit and total fixed costs may change outside the relevant range
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Week 11- Cost-volume-profit relationships - Week 11...

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