In: Business and Management

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Distinguish between variable and fixed costs. Variable costs are costs that vary in totaldirectly and proportionately with changes in the activity index. Fixed costs are costs thatremain the same in total regardless of changes in the activity index.2.
Explain the significance of the relevant range. The relevant range is the range of activityin which a company expects to operate during a year. It is important in CVP analysisbecause the behavior of costs is linear throughout the relevant range.3.
Explain the concept of mixed costs. Mixed costs increase in total but not proportionatelywith changes in the activity level. For purposes of CVP analysis, mixed costs must beclassified into their fixed and variable elements. One method that management may use isthe high-low method.4.
List the five components of cost-volume-profit analysis. The five components of CVPanalysis are (a) volume or level of activity, (b) unit selling prices, (c) variable cost per unit,(d) total fixed costs, and (e) sales mix.5.
Indicate what contribution margin is and how it can be expressed. Contribution marginis the amount of revenue remaining after deducting variable costs. It can be expressed as aper unit amount or as a ratio.6.
Identify the three ways to determine the break-even point. The break-even point can be(a) computed from a mathematical equation, (b) computed by using a contribution margintechnique, and (c) derived from a CVP graph.7.
Define margin of safety and give the formulas for computing it. Margin of safety is thedifference between actual or expected sales and sales at the break-even point. Theformulas for margin of safety are Actual (expected) sales – Break-even sales = Margin of safety in dollars; Margin of safety in dollars ÷ Actual (expected) sales = Margin of safetyratio.8.
Give the formulas for…...

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