What are the components of cost-volume-profit

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1. What are the components of cost-volume-profit (CVP) analysis?

2. How does a CVP income statement help management make decisions?

3. In order for a company to attain its financial goals, decision makers need to have an understanding of how activity levels impact business cost. In many businesses, It is management that has the responsibility of controlling cost by monitoring budgets, while implementing action steps to maintain or increase revenues.

Reflecting on your reading of chapter 18 respond to the following question:

How does variable and fixed cost affect how cost responds to changes in the level of business activity? Offer an explanation both fixed cost and variable cost.

4. How does a company's operating leverage effect its profitability?

5. In what type of business decisions can incremental analysis be used?

6. Watch the "Author's Corner: Break Even and Cost-Volume-Profit Analysis" video. Consider the following as you watch:

  • Why is it important for a manager to understand break-even or cost-volume-profit analysis?

7. Watch the "Author's Corner: Incremental Analysis" video. Consider the following as you watch:

  • What is incremental analysis?

8. Watch the "Author's Corner: Incremental Analysis" video. Consider the following as you watch.

  • In what types of situations is incremental analysis most useful?

Tutor Answer

strongboss5
School: UCLA

Kindly see attached file

1. What are the components of cost-volume-profit (CVP) analysis?
The components of cost-volume-profit analysis include:


The activity level, which accounts for the total number of units sold during the period for each
activity



The price per unit, which represents the average price of the units sold during this period



The variable cost per unit, which takes into account both the cost of the materials used in the
production of each unit and the sales commissions



The total fixed cost of the company during the time period

2. How does a CVP income statement help management make decisions?
The income statement prepared using cost-volume profit analysis enables the managers of the
company to rapidly evaluate which are the most expensive and the most profitable activities carried out
by the company. In this regard, the calculation of the income and costs of each single activity performed
by the company helps the decision-making process of the managers as they can focus on the activities
providing the highest profitability or minimizing the costs. Further, it helps in the allocation of resources,
as the manager knows exactly how many resources are necessary for t...

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Anonymous
Excellent job

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