tailieunhanh - Lecture Fundamental accounting principles (20/e): Chapter 22 - Wild, Shaw, Chiappetta

Chapter 22 - Cost-volume-profit analysis. After completing this chapter you should be able to: Describe different types of cost behavior in relation to production and sales volume, describe several applications of costvolume-profit analysis, compute the contribution margin and describe what it reveals about a company's cost structure, analyze changes in sales using the degree of operating leverage. | Chapter 22 COST-VOLUME-PROFIT ANALYSIS Chapter 22: Cost-Volume-Profit Analysis FIXED COSTS Total fixed costs remain constant as activity increases. Number of Local Calls Monthly Basic Telephone Bill Cost per call declines as activity increases. Number of Local Calls Monthly Basic Telephone Bill per Local Call C 1 We begin our study of cost behavior with fixed costs. Your basic land-line telephone has a monthly connect charge that remains constant regardless of the number of local calls that you might make. The monthly charge that is independent of call activity is a fixed cost. Fixed costs per unit decline as activity increases. Dividing your monthly connect fee by more local calls reduces the cost per call by spreading the fixed amount over a higher number of calls. For example, if your monthly connect charge is $20 and you make 40 local calls in a month, your cost per local call is $. If you make 100 local calls in a month, your cost per local call is $. VARIABLE COSTS Total variable costs increase as activity increases. Minutes Talked Total Costs Cost per Minute Minutes Talked Cost per Minute is constant as activity increases. C 1 Total variable costs increase as activity increases. For most people, the total land-line long distance telephone bill is based on the number of minutes talked. As such, there’s a direct relationship between the number of minutes talked and your total bill. The cost per minute talked on your land-line is normally constant. For example, your service may charge five cents per minute. Talking more or less minutes will not change the per minute charge, so on a per unit basis, variable costs remain unchanged. MIXED COSTS Mixed costs contain a fixed portion that is incurred even when the facility is unused, and a variable portion that increases with usage. Utilities typically behave in this manner. Fixed Monthly Utility Charge Variable Cost per KW Activity (Kilowatt Hours) Total Utility Cost Total mixed cost C 1 Mixed costs have . | Chapter 22 COST-VOLUME-PROFIT ANALYSIS Chapter 22: Cost-Volume-Profit Analysis FIXED COSTS Total fixed costs remain constant as activity increases. Number of Local Calls Monthly Basic Telephone Bill Cost per call declines as activity increases. Number of Local Calls Monthly Basic Telephone Bill per Local Call C 1 We begin our study of cost behavior with fixed costs. Your basic land-line telephone has a monthly connect charge that remains constant regardless of the number of local calls that you might make. The monthly charge that is independent of call activity is a fixed cost. Fixed costs per unit decline as activity increases. Dividing your monthly connect fee by more local calls reduces the cost per call by spreading the fixed amount over a higher number of calls. For example, if your monthly connect charge is $20 and you make 40 local calls in a month, your cost per local call is $. If you make 100 local calls in a month, your cost per local call is $. VARIABLE COSTS Total