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acc wk 6 check - 14 Linda Fern asks your help in...

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7. How should mixed costs be classified in CVP analysis? What approach is used to effect the appropriate classification? -To classify the mixed cost is by breaking them down into their fixed and variable components each time a cost incurred. This is a labor-intensive process for recurring mixed costs so there is a high-low method which can be used to effectively estimate the variable cost component within the mixed cost. In order for this approach to work there must be enough history showing both peaks in highest and lowest activity levels for the company. Knowing the change in total costs and the difference in the amount of the units consumed during those periods can be used to calculate the variable cost per unit. 9. “Cost-volume-profit (CVP) analysis is based entirely on unit costs.” Do you agree? Explain. -No, I do not agree because cost-volume-profits analysis will show all kinds of costs. There are few fixed costs that can be studied on CVP graph.
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Unformatted text preview: 14. Linda Fern asks your help in constructing a CVP graph. Explain to Linda (a) how the break-even point is plotted, and (b) how the level of activity and dollar sales at the break-even point are determined .-To plot the break-even point you must first graph the fixed costs and the intersection of sales volume graph with the variable costs line. Fixed cost is best represented with a horizontal line that is parallel to the x-axis. The variable cost graph will be representing an increase in dollars (y-axis) as the volume of activity increases (y-axis). The sales volume will be represented by an increase in revenue with an increase in volume. The point in which the sales volume graph intersects the variable cost line is the break-even point. The y coordinate of the point represents the amount of sales the company needs to recover all of its profits. The x coordinate represents the amount of activity a company will reach to get to that the point....
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