Chapter 18 - Cost-volume-profit. In this chapter students will be able to: Explain variable, fixed, and mixed costs and the relevant range; apply the high-low method to determine the components of mixed costs; prepare a CVP income statement to determine contribution margin. | COST-VOLUME-PROFIT Accounting, Fifth Edition 18 After studying this chapter, you should be able to: Distinguish between variable and fixed costs. Explain the significance of the relevant range. Explain the concept of mixed costs. List the five components of cost-volume-profit analysis. Indicate what contribution margin is and how it can be expressed. Identify the three ways to determine the break-even point. Give the formulas for determining sales required to earn target net income. Define margin of safety, and give the formulas for computing it. Learning Objectives Preview of Chapter 18 Accounting Fifth Edition Kimmel Weygandt Kieso Cost Behavior Analysis is the study of how specific costs respond to changes in the level of business activity. Some costs change; others remain the same. Helps management plan operations and decide between alternative courses of action. Applies to all types of businesses and entities. Starting point is measuring key business activities. Cost Behavior Analysis LO 1 Distinguish between variable and fixed costs. Cost Behavior Analysis is the study of how specific costs respond to changes in the level of business activity. Activity levels may be expressed in terms of: Sales dollars (in a retail company) Miles driven (in a trucking company) Room occupancy (in a hotel) Dance classes taught (by a dance studio) Many companies use more than one measurement base. Cost Behavior Analysis LO 1 Distinguish between variable and fixed costs. Cost Behavior Analysis is the study of how specific costs respond to changes in the level of business activity. Changes in the level or volume of activity should be correlated with changes in costs. Activity level selected is called activity or volume index. Activity index: Identifies the activity that causes changes in the behavior of costs. Allows costs to be classified as variable, fixed, or mixed. Cost Behavior Analysis LO 1 Distinguish between variable and fixed costs. LO 1 Distinguish between variable and . | COST-VOLUME-PROFIT Accounting, Fifth Edition 18 After studying this chapter, you should be able to: Distinguish between variable and fixed costs. Explain the significance of the relevant range. Explain the concept of mixed costs. List the five components of cost-volume-profit analysis. Indicate what contribution margin is and how it can be expressed. Identify the three ways to determine the break-even point. Give the formulas for determining sales required to earn target net income. Define margin of safety, and give the formulas for computing it. Learning Objectives Preview of Chapter 18 Accounting Fifth Edition Kimmel Weygandt Kieso Cost Behavior Analysis is the study of how specific costs respond to changes in the level of business activity. Some costs change; others remain the same. Helps management plan operations and decide between alternative courses of action. Applies to all types of businesses and entities. Starting point is measuring key business activities. Cost Behavior .
