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Lecture Survey of accounting - Chapter 11: Cost behavior, operating leverage and profitability analysis

When you finish this chapter, you should: Identify and describe fixed, variable, and mixed cost behavior; demonstrate the effects of operating leverage on profitability; prepare an income statement using the contribution margin approach; calculate the magnitude of operating leverage;. | McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 11: Cost Behavior, Operating Leverage and Profitability Analysis Learning Objectives Identify and describe fixed, variable, and mixed cost behavior. Demonstrate the effects of operating leverage on profitability. Prepare an income statement using the contribution margin approach. Calculate the magnitude of operating leverage. Demonstrate how the relevant range and the decision-making context affect cost behavior. Calculate the break-even point. Calculate the sales volume required to attain a target profit. Calculate the margin of safety in units, dollars and percentage. In this chapter, the learning objectives are: Identify and describe fixed, variable, and mixed cost behavior. Demonstrate the effects of operating leverage on profitability. Prepare an income statement using the contribution margin approach. Calculate the magnitude of operating leverage. Demonstrate how the relevant . | McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 11: Cost Behavior, Operating Leverage and Profitability Analysis Learning Objectives Identify and describe fixed, variable, and mixed cost behavior. Demonstrate the effects of operating leverage on profitability. Prepare an income statement using the contribution margin approach. Calculate the magnitude of operating leverage. Demonstrate how the relevant range and the decision-making context affect cost behavior. Calculate the break-even point. Calculate the sales volume required to attain a target profit. Calculate the margin of safety in units, dollars and percentage. In this chapter, the learning objectives are: Identify and describe fixed, variable, and mixed cost behavior. Demonstrate the effects of operating leverage on profitability. Prepare an income statement using the contribution margin approach. Calculate the magnitude of operating leverage. Demonstrate how the relevant range and the decision-making context affect cost behavior. Calculate the break-even point. Determine the sales volume required to attain a target profit. Calculate the margin of safety in units, dollars and percentage. Fixed Cost Behavior When Activity Increases When Activity Decreases Total fixed costs Remains Constant Remains Constant Fixed cost per unit Decreases Increases Total versus per-unit fixed costs behave differently. The total cost for the band remains constant (fixed) at $48,000. In contrast, fixed cost per unit decreases as volume (number of tickets sold) increases. The term fixed cost is consistent with the behavior of total cost. Total fixed cost remains constant (fixed) when activity changes. However, there is a contradiction between the term fixed cost per unit and the per-unit behavior pattern of a fixed cost. Fixed cost per unit is not fixed. It changes with the number of tickets sold. This contradiction in terminology can cause untold confusion. Study .