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lan27114_ch03_080-109.indd 95 10/5/09 11:09:29 PM 10/22/09 10:34:02 PM REVISED PAGES Part II 96 3-4.
3-11. Cost Analysis and Estimation 1 Compare cost-volume-proﬁt (CVP) analysis with proﬁt-volume analysis. How do they
Fixed costs are often deﬁned as “ﬁxed over the short run.” Does this mean that they are not
ﬁxed over the long run? Why or why not?
What is operating leverage? Why is knowledge of a ﬁrm’s operating leverage important to
What is the margin of safety? Why is this important for managers to know?
Write out the equation for the target volume (in units) proﬁt equation when the income tax
rate is t.
How do income taxes affect the break-even equation? Why?
Why is it common to assume a ﬁxed sales mix before ﬁnding the break-even volume with
What are some important assumptions commonly made in CVP analysis. Do these
assumptions impose serious limitations on the analysis? Why or why not? Orientation Preparing and Organizing Yourself
for Success in College Critical Analysis and Discussion Questions
3-18. Exercises Why might the operating proﬁt calculated by CVP analysis differ from the net income
reported in ﬁnancial statements for external reporting?
Why does the accountant use a linear representation of cost and revenue behavior in CVP
analysis? How is this justiﬁed?
The typical cost-volume-proﬁt graph assumes that proﬁts increase continually as volume
increases. What are some of the factors that might prevent the increasing proﬁts that are
indicated when linear CVP analysis is employed?
“The assumptions of CVP analysis are so simplisticC that noTﬁErm S I N make R T O N E
P A a decision
based on CVP alone. Therefore, there is no reason to learn CVP analysis.” Comment.
“I am going to work for a hospital, which is a not-for-proﬁt organization. Because there are
no proﬁts, I will not be able to apply 1 CVP analysis in my work.” Do you agree with this
any Making Yourself Successful in College
statement? Why or why not?
Consider a class in a business school where volume is measured by the number of students
2 leverage is high or low? Why?
in the class. Would you say the operating Approaching College Reading and
Developing College-Level Vocabulary
On January 1, 2009, a news report on msn.com includedathe following sentence: “A report
put out by brokerage house CLSA about Jet Airways said that the fall in ATF [fuel] prices
has brought down the load factors (ﬂight occupancy) required for the airline to break even
3 Approaching College limitations should be
from 78 percent to 63 percent.” What important assumptions andAssignments:
Reading (The load factor Following Directions
considered when using this piece of information? Textbooks and is the percentage of
available seats on a ﬂight that are occupied.) accounting 3-19. Proﬁt Equation Components
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This note was uploaded on 02/07/2014 for the course MIS 304 taught by Professor Mejias during the Spring '07 term at University of Arizona- Tucson.
- Spring '07