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ORGANIZATION OF THE CHAPTER
The chapter first addresses the nature of costs. Once terms and concepts have been defined, we can take up the
subject of cost-volume-profit (CVP) analysis. We look at CVP analysis (sometimes called breakeven analysis) in
its most basic form, and then examine a variety of special considerations that can serve to complicate it.
THE NATURE OF COSTS
Fundamental to any discussion of costs is the question of their behavior. Chapter 1 identified the distinction
between production center and service center costs. But costs also can be assessed in terms of whether they are relatively fixed or relatively variable. In general, the fixed/variable distinction lets us see more clearly how a change in
the volume of activity of a given cost center will affect cost behavior. To fully understand this idea, we also need to
include the refinements of semi-variable and step-function costs. The four types of costs are shown in Exhibit 2-1.
A discussion of each follows.
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- Spring '14
- ........., Boston University School of Management, Crimson Press Curriculum Center, Professor of Accounting and Control