10 Questions
Which type of cost changes in proportion to changes in the activity base?
Variable costs
What is the characteristic of fixed costs with respect to cost per unit as the activity level increases?
Decreases
Which method is used to separate mixed costs into their fixed and variable components?
High-Low Method
What are the characteristics of mixed costs?
Have features of both variable and fixed costs
What is the formula to calculate the unit contribution margin?
Sales Price per Unit - Variable Cost per Unit
How do increases in fixed costs affect the break-even point?
Increase the break-even point
What is the Contribution Margin Ratio formula?
Contribution Margin / Sales
How do decreases in unit variable costs affect the break-even point?
Decrease the break-even point
What is the purpose of cost-volume-profit analysis?
To examine relationships among selling prices, sales volume, costs, and profits
How does an increase in unit selling price affect the break-even point?
Increase the break-even point
Study Notes
Cost Classification
- Variable costs change in proportion to changes in the activity base.
Fixed Costs
- Fixed costs per unit decrease as the activity level increases.
Mixed Costs
- Mixed costs have both fixed and variable components.
- The High-Low Method is used to separate mixed costs into their fixed and variable components.
- Characteristics of mixed costs: they have both fixed and variable components, and the total cost remains constant within a certain range of activity.
Contribution Margin
- The formula to calculate the unit contribution margin is: Selling Price - Variable Costs.
- The Contribution Margin Ratio formula is: (Selling Price - Variable Costs) / Selling Price.
Break-Even Point
- Increases in fixed costs increase the break-even point.
- Decreases in unit variable costs decrease the break-even point.
- An increase in unit selling price decreases the break-even point.
Cost-Volume-Profit Analysis
- The purpose of cost-volume-profit (CVP) analysis is to examine the relationships between a company's costs, volume, and profitability.
Test your knowledge on how costs change with related activities and the concept of variable costs. Learn about identifying activities that affect cost changes and specifying relevant activity ranges.
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