COMMERCE 2AB3 Chapter 6: Chapter 6 Wiley
29 Jan 2017
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Document Summary
Cost volume profit analysis, income statement, and the contribution margin. Study of the effects of costs and volume on a company"s profits. Consider the interrelationships among the five components of cvp analysis: Important in profit planning: volume or level of activity, unit selling prices, variable cost per unit, total fixed costs, sales mix. Behaviour of both costs and revenues is linear throughout the relevant range of the activity index. All costs can be classified as either variable or fixed with reasonable accuracy. When more than one type of product is sold, the sales mix will remain constant. Inventory levels remain constant- all units produced are sold. Classifies costs and expenses as fixed or variable. Reports contribution margin in the body of the statement: contribution margin - amount of revenue remaining after deducting variable costs, cm = selling price - variable costs. Reports the same income as a traditional income statement.
