COST BEHAVIOR AND COST-VOLUME-PROFIT ANALYSIS
Review the three components in the background material to answer the questions and make computations relating to cost behavior and break-even analysis.
Ten Short-Answer Questions
- Differentiate between variable and fixed costs. Describe the two major behavior patterns. What if a cost has characteristics of both patterns?
- What is meant by the term break-even point? What is a potential benefit of calculating break-even?
- Why is the concept of relevant range crucial for understanding fixed-cost behavior?
- What is the formula for calculating the break-even point in sales revenue?
- What formula is used to solve for the break-even point in units?
- How can the break-even formula be altered to calculate the number of units that must be sold to achieve a desired level of income (target income)? Show the formula and explain.
- What effect would you expect the mechanization and automation of production processes to have on the break-even point?
- Why might a business wish to lower its break-even point? How would it go about lowering the break-even point?
- Describe three ideas that can lower the break-even point and include a simple example with numbers.
Review the background material and do some research to find a real-world example where cost-volume-profit analysis was applied or could be applied. Information can be found in the news, research papers, and on investment sites. Another option is to locate the financial statements for a company, make some assumptions, and prepare your own break-even analysis from an external point of view. Describe the situation and the results. Show computations when appropriate.
Write 3–5 sentences for each question.
Write an essay (300–500 words).
Show sources when appropriate and APA format is suggested, but not required.