COST BEHAVIOR AND COST-VOLUME-PROFIT ANALYSIS
Assignment Overview
Review the three components in the background material to answer the questions and make computations relating to cost behavior and break-even analysis.
Case Assignment
Part 1
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.
Part II
Real-World Example
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.
Assignment Expectations
Part I
Write 3–5 sentences for each question.
Part II
Write an essay (300–500 words).
Show sources when appropriate and APA format is suggested, but not required.
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