Young management accounting for managers chapter 2

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Unformatted text preview: environment where price was market-driven, and we knew about how many units we could sell at that price, we could set up either fixed costs or unit variable costs as the unknown and solve for either one. Profit Considerations. We can incorporate our profit goals into CVP analysis simply by adding the amount of desired profit to our fixed costs, and then calculating a breakeven point with that new level of “fixed costs.” Similarly, if we were planning to pay dividends, or needed a margin of safety, we could incorporate these amounts into our so-called fixed cost figure. SPECIAL CONSIDERATIONS IN COST-VOLUME-PROFIT ANALYSIS A number of special considerations can complicate a CVP analysis: the presence of semi-variable costs, the behavior of step function costs, and the existence of more than one product. Let's look at each of these. CVP Analysis with Semi-Variable Costs Incorporating semi-variable costs into a cost -volume-profit analysis is relatively easy. Since semi-variable costs have a fixed component and a variable component, we simply need...
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