Cost, Volume and Profit

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Cost, Volume, and Profit By: Dariana Aviles “Cost-volume-profit (CVP) analysis is the study of the effects of changes in cost and volume on a company’s profits.”( Kimmel, Weyandt & Kieso, 2003, p.263) The mix cost should be classified in their fixed and variable elements. This can be determined by using the high/low method. This method takes the amount of costs acquired over a high point in the time and also a low point in the time. The approach that is being used to effect the appropriate classification would be the contribution margin ration, which is a unit divided by the unit price. “Cost-volume-profit analysis based entirely on unit cost” I would have to say that I disagree because there are several different factor CVP is based on such as volume or level of activity, unit selling price, variable cost per unit, total fix cost and sales fix. CVP is used to compute the volume level at which total revenue are equal to a total cost. The way I would explain to Linda how the break even point is plotted by first knowing the key to break even. The key to break even is to work out the contribution made from the sale of each unit. The points are plotted by any two points from the sales revenue data for the sale revenue line and then draw a straight line for sale revenue, once you have plotted them and you made the line threw them you will find that the sale revenue crosses the total cost line in the break even point. Then you read off the units of sales to give the break even level of sales. The gap between the total cost line and sale revenue line after the break even point represent the level of profit. Reference: Kimmel, P., Weygandt, J., & Kieso, D. (2003). Essentials of accounting: Tools for business decision making (2nd ed.). Hoboken, NJ:

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