Week 3: CVP Analysis and Variable Costing

- Discussion

Cost-Volume-Profit Analysis (graded)

Discuss the basic assumptions of CVP analysis and how we can use CVP analysis as mangers in making
decisions.

Responses

Responses are listed below in the following order: response, author and the date and time the
response is posted.
Response Author Date/Time
Class Professor Backman 11/10/2012 5:01:31 AM
Let's start off by talking about the following costs: Define each cost and give
examples of each.

1. Discretionary fixed costs

2. Committed fixed costs
3. Mixed Costs
4. Relevant Range

I really appreciated everyone's effort in the class last week. Keep working hard.
Thanks

RE:
11/16/2012 2:46:57 PM
Class Robert Russo
There are many types of cost when it comes to companies and how they
record and separate so they can be easily watched and changed if needed.
A discretionary fixed cost has a short planning cost that can be quickly
changed if needed, this cost is usually planned for about a year at a time and
could easily be changed by management. A committed fixed cost is
definitely more of a long term planned cost and once decided a company
usually has planned years ahead for these types of cost, usually some kind of
investment. Mixed cost are smaller cost that could be month to month or year
to year, could be outsourced for a service or utility. Relevant range is
the fluctuation and room that each side has to sway that is careful planned and
watched to make sure costs don't exceed what planned.

RE:
11/14/2012 11:39:52 PM
Class Thomas Ponce
Discretionary fixed costs are those fixed costs that arise from annual
decisions by management to spend in certain fixed cost areas, for example
advertising and research.

Committed fixed costs are those fixed costs that are difficult to adjust and that
relate to the investment in facilities, equipment, and the basic organizational
structure of a firm.

A mixed cost is one that contains both variable and fixed cost elements.
Mixed cost is also known as semi variable cost. Examples of mixed costs
include electricity and telephone bills.

The range of activity within which assumptions about variable and fixed cost
behavior are valid.

Thomas Professor Backman 11/18/2012 5:34:23 AM

What is a more complete definition of contribution margin? What is
contribution margin tell us about a business?

RE:
11/18/2012 1:14:23 PM
Thomas Thomas Ponce
Ok so a situation in which a manager determines that a
certain product has a 35% contribution margin, which is
below that of other products in the company's product line.
This figure can then be used to determine whether variable
costs for that product can be reduced, or if the price of the
end product could be increased. If these options dont sit
well with the manager, he/she may decide to drop the
unprofitable product in order to produce an different product
with a higher contribution margin.
 RE:
11/14/2012 4:37:32 PM
Class Sharon Garcia
The discretionary fixed costs are cost that a manger can change in the short
term. Repair and maintenance cost is an example of discretionary fixed costs.

Committed fixed costs cannot be easily changed in a short time. Committed

fixed costs example would be insurance related to buildings and equipment.

Mixed Costs are costs that vary and costs that are fixed. An example would
be a loan processor with a salary of 40k per year, but a per closed file bonus.
The bonus is going to change every pay period, but the salary stays the same.

Relevant Range is what the name says a good estimate, and example is that I
estimate I will close 30 loans this month, based on information I have. At the
end of the month I did close 30 loans.

RE:
11/14/2012 7:04:51 PM
Class Christy Vaflor
Discretionary fixed costs are fixed costs that can easily change in the short
run, such as advertising, research & development, and repair & maintenance
costs.

Committed fixed costs are fixed costs that cannot be change in a relatively
short period of time, such as rent, depreciation, and insurance costs.

Mixed costs are costs that consist of both variable costs and fixed costs. For
example a person being paid salary plus commission. They have a fixed
salary of $5,000 per month but depending on how much they sold this month
the commission varies.

Relevant range is the range where estimates and predictions are expected to
be accurate.

Christy
You
11/15/2012 9:15:14 AM
Are On Professor Backman
Point!!
What happens to fixed cost per unit when sales increase? How does
 volume impact CVP analysis?

RE:
11/14/2012 7:13:58 PM
Class Stephanie Motak
Discretionary fixed costs usually arise from annual decisions by management
to spend on certain fixed cost items. Examples of discretionary costs are
advertising, machine maintenance, and research & development expenditures.
Discretionary fixed costs can be expensive. Investments in facilities,
equipment, and the basic organization that can't be significantly reduced in a
short period of time are referred to as committed fixed costs.

RE:
11/14/2012 8:20:05 PM
Class Alison Richards
When we speak about discretionary cost we are more than likely referencing
the fact that it can be viewed as not only a cost but a capital expenditure as
well. This can be curtailed as well as be eliminated throughout a short period
of time or term this occurs without having an immediate impact towards or on
the short-term profitability. An example of discretionary costs is advertising.
Committed fixed cost are pretty self explanatory by its name as these costs
are mos difficult to adjust as they are fixed. Mixed cost or semi-variable costs
contains both a variable cost and fixed cost. An example of such cost would
be my electric bill. The relevant range is a reference to the min and the max
amounts to a certain activity level. Relevant range is useful when trying to
budget and to be use in cost accounting.

RE:
11/14/2012 9:57:39 AM
Class Mike Beckta
Discretionary fixed costs are those fixed costs that arise from annual decisions by
management to spend in certain fixed cost areas, for example advertising and research.

Cost behavior refers to how a cost will react or respond to changes in the level of business
activity. As the level of activity rises and falls, a particular cost may rise and fall as well--or it
may remain constant.

Mixed costs often refers to the behavior of costs and expenses mixed costs consist of a fixed
component and a variable component.
Relevant Range is a span of activity over which a certain cost behavior holds true to its
specific market.

RE:
11/13/2012 6:04:32 PM
Class Glen Souder
Modified:11/13/2012 6:15 PM
Definitions and examples:

1. Discretionary fixed costs - Fixed cost that management can easily change.
Examples noted in our text are expenditures like advertising, research and
development.
2. Committed fixed costs - Fixed cost that are not easily changed in a short
period of time. Examples are rent Depreciation of buildings and equipment as
well as insurance.
3. Mixed Costs - Are cost the contain both variable cost element nd fixed
cost element This cost is also known as semi-variable cost. A similar example
is that noted in our text, salesperson paid a salary of 100K per year (fixed
amount) with a commissions variable on new client sales.
4. Relevant Range- When working with estimates and variable cost, the
limited range of activity in which predictions and estimates are assume to be
valid is the relevant range. An example would be a company using it's fixed
and variable cost to estimate production demand (levels) of say 4,000 units. A
previously calculated high level of production is set at 3000, therefore
the predicted quantity is outside of the relevant range.

Glen Professor Backman 11/15/2012 9:16:13 AM

Can you provide some examples of how CVP analysis helps
managers make decisions? What type of decisions are companies
making using CVP analysis?

RE:
11/17/2012 9:06:30 PM
Glen Alison Richards
When using cost volume profit (CVP) analysis in
managerial accounting you are using this tool for the
purpose of make short term decisions that helps with
managers comprehension. The managers use CVP when it
comes to the behaviors of total costs, total revenues,
operating income, the sold prices, variable along with fixed
costs. This tool is essential when trying to see the company's
profit based off of the categories listed above. It also
changes the level of output from using CVP analysis. To
know the profit the total revenues is subtracted from the
variable costs as well as the fixed costs. CVP analysis helps
to separate the costs into the tow listed to be able to use the
equation, as variable cost changes a the output changes but
fixed stays the same (relevant range).

RE:
11/17/2012 2:00:44 PM
Glen Sandrea Igess
CVP gives the advantage of being able to answer specific
pragmatic questions needed in business analysis.
-What the company's breakeven point is will give the
managers of projects how future spending/production can
mean success or failure for the company.
-It also provides a detailed snapshot of company activity,
from costs needed to produce to amounts produced.
-CVP can only answer approximately rather than exactly
when solving issues with data/details.

RE: 11/17/2012 6:46:13

Glen William Hines Iv PM
I agree with these items being analyzed. With
determining the break even point, a company can
look at how many pieces need to be sold to break
even. They can also look at if it is a good idea to
raise prices. The example we had in the text said
that if prices were raised that sales would decrease.
Even though the sales did decrease, the outcome
was more gain. This is why an analysis is good to
 perform.

11/18/2012 5:35:55
William Professor Backman
AM
There are several methods to separate
mixed costs into their variable and fixed
portions. Of the three methods which one is
better?

RE: 11/18/2012 4:19:39

William William Hines Iv PM
I find the variable to be the best
analysis. When you use the fixed
cost examination, it can show you
as still making a profit but that is
because they are using all the
pieces in the equation. With the
variable it allows you to see what
is actually happening. This will
also allow you to determine what
is working and what is not.

RE: Glen:
Cost
Volume 11/16/2012 8:50:05
Analysis Glen Souder PM
(CVP)
applications
Modified:11/16/2012 8:53 PM
Cost Volume Analysis (CVP) provides managers some form
of quantifiable methodology in making decisions making. It
is a formula to analyze costs, volumes and profits.
CVP assists managers in planning, control and decision
making. CVP assist managers in identifying the
relationships between cost & profit while taking
consideration in any influences that volume changes might
occur.

CVP also helps managers analyze the cost of manufacturing,

profit and costing for planning. CVP helps decisions
 making in costing vs demand changes. In summary CVP is a
tool to perform analysis on costing.

An example of utilizing CVP to make decisions are wether

or not to increase the cost of an product to increase profits
coupled with how much should be produced to match
demand in production. Is the current manufactured product
prices correctly to cover production cost and perform the
best profit margin?

RE:
11/13/2012 6:58:16 PM
Class Stacey Wilson
1. Discretionary fixed costs - Fixed costs that management has the ability to
change in the short run. Examples: R&D, repair, and advertising costs.
2. Committed fixed costs - Committed fixed costs that cant be easily changed
in a short time. Example: Rent and insurance.
3. Mixed Costs - Costs that contain both variable and fixed cost elements. In
the book they give an example of an employee getting both commission
(which is a variable amount) and a fix amount which is his or her salary.
4. Relevant Range - The activity for which estimated and predictions are to be
accurate.

RE:
11/13/2012 10:22:59 PM
Class Darion Maynor
Discretionary fixed costs are fixed costs that management can easily change.
An example would be research and development in an
organization. Committed fixed costs are fixed costs that are not easily
changed in a short period of time. An example would be the depreciation of a
piece of equipment in a factory. Mixed Costs are costs that contain both
variable cost element and fixed cost element. An example would be a
marketing executive who has a base salary but also gets a percentage of sales
as commission. Relevant range is the limited ranges of activity in which
predictions and estimates are assume to be valid. An example would be a
company using its fixed and variable cost to estimate production demand of
says 500 tons when the previous estimates are about 100 tons.

Darion Professor Backman 11/14/2012 12:17:10 PM

Can you provide an example of how to determine break even point
and margin of safety?

RE:
11/17/2012 11:39:58 PM
Darion Thomas Ponce
The formula or equation for the calculation of margin of
safety is as following:

[Margin of Safety = Total budgeted or actual sales Break

even sales]

The margin of safety can also be expressed in percentage

form. This percentage is obtained by dividing the margin of
safety in dollar terms by total sales. Following equation is
used for this purpose.

[Margin of Safety = Margin of safety in dollars / Total

budgeted or actual sales]

RE:
11/16/2012 10:20:17 PM
Darion Darion Maynor
Break even point is the level of sales at which net income
equals zero. An example would be if it costs $100 to make
100 bags of candy, then I would have to sell the bags of
candy at $1 to break even. The margin of safety is the
difference between the break even point and what you
expected to sell. For example, if we expected to sell the
bags of candy at $2, the your margin of safety would be
{($2*100)-($1*100)}= $100

RE:
11/15/2012 8:09:34 AM
Darion Mike Beckta
Modified:11/15/2012 8:11 AM
The break-even point is the number of units that must sell for a company
to break even. At this level net income is equal to 0, and the firm neither
earns a profit nor suffers a loss. The margin of safety is: Margin of
 Safety = Expected Sales - Break-even Sales.

RE:
11/14/2012 6:39:37 PM
Darion Rachel Labs
Break even point is basically the minimum price and number
of units you must sell to neither gain profit or loose money.
An example would be if you buy 500 cans of soda at $250
you must at least cell each can at 50cents in order to break
even. Margin of safety is the difference between what you
expect to sell and the break-even point. I you expect to sell
the cans at 75cents - $375 for the total of 500 cans - the
Margin of safety would be expected sale- break even point
($375-$250) = $125 or 25 cents more per can.

RE: 11/14/2012 9:47:59

Darion Richard Astin PM
Rachel, I agree with you. To help others in the
class, I looked up the formula from the book and
will cite it below. The technical answer for break
even point is when you set the Profit to zero and
solve for (x) in the equation on page 131 of the
textbook. SP(x) is the Selling Price per Unit (x),
VC(x) is the Variable Cost per Unit(x) and is the
Total Fixed Costs.

Profit=SP(x)VC(x)TFC

Jiambalvo. Managerial Accounting, 4th Edition.

John Wiley & Sons.
<vbk:9781118091050#outline(4.4.3)>.

What
11/15/2012 9:14:07
Do You Professor Backman
AM
Think??
Using the following information determine
the break even point in units and dollars?
Contribution Margin Ratio?

How many units does a business need to

sell in order to earn a profit of $60,000?
 Selling Price = $10/unit
Variable Cost = $7/unit
Fixed Costs = $30,000

RE:
What 11/15/2012
Do You Richard Astin 11:25:52 PM
Think??
Profit = SP(x) VC(x) TFC

60000 = 10x - 7x - 30000

90000 = 3x
30000 = x
Need to sell 30,000 units in order
to make $60,000 profit.

0 = 10x - 7x - 30000
30000 = 3x
10000 = x
Break even point is 10,000 units.

Contribution Margin Ratio = (10 -

7)/10 = 3/10 = 30%

RE:
What 11/16/2012
Do You Casey Agans 2:31:19 PM
Think??
Nice work on both posts
Richard.

RE:
What
11/17/2012 8:57:02
Do You Glen Souder
PM
Think??
BEP
Modified:11/17/2012 9:38 PM
To calculate the BEP (Break Even
Point) using the Profit equation
outlined on page 131,
 Profit = Selling Price - Variable
Cost - Total Fixed Cost
=SP(x) - VC(x) -TFC

For the break-even point, set the

profit to equal 0 and solve for
(x).

Using the provided TDA data ->

0=$10x-$7x-$30,000
0=3x-$30,000
3x=$30,000
x=10,000units or $100,000 dollars

Contribution Margin Ratio = SP -

VC / SP
Contribution Margin Ratio = $10 -
$7 / $10 -> $3 / $10
Contribution Ratio = 0.30 or 30%

11/18/2012
Glen Professor Backman
5:37:26 AM
You are exactly on point.
When volume of
production goes up or
down what happens to the
fixed cost per unit? Why
do so many companies
like Walmart focus on
volume in their stores?
Thanks

RE: 11/18/2012
Glen Richard Astin 9:41:39 PM
A store like
Walmart may
have a small
markup on their
products like
maybe only
15%. When total
fixed cost is
constant, and the
 store reaches the
break even point,
the only way to
make money
above that is to
increase the
volume sold. The
other way a
company might
increase the profit
would be to
increase the
prices. However,
a company like
Walmart wants to
always keep
prices as low as
possible, so they
can beat out the
competition.
SP = $5
VC = $4
TFV = $30,000
break even =
30000 units
Selling 40000
= $10,000 profit
Selling 50000
= $20,000 profit
That means
selling 10,000
more units
doubles the
amount of profit
in this scenario.

RE:
11/13/2012 9:41:22 AM
Class Britney Womble
"1. Discretionary fixed costs - are those fixed costs that management can easily change in the
short run. Examples include advertising, research and development, and repair and
maintenance costs.
2. Committed fixed costs - are those fixed costs that cannot be easily changed in a relatively
brief period of time. Such costs include rent, depreciation of buildings and equipment, and
insurance related to buildings and equipment.
3. Mixed Costs - are costs that contain both a variable cost element and a fixed cost
element. For example, a salesperson may be paid $80,000 per year (fixed amount) plus
commissions equal to 1 percent of sales (variable amount).
4. Relevant Range - the range of activity for which estimates and predictions are expected to
be accurate. For example, a manager at CodeConnect may not feel confident using the
regression estimates of $93,619 fixed cost and $90.83 variable cost per unit to estimate total
cost for a production level of 4,000 units." (Jiambalvo)

Source: Jiambalvo (P.122 and 129). Managerial Accounting [4] (VitalSource Bookshelf),
Retrieved from http://online.vitalsource.com/books/9781118091050/id/L4-3-5

RE:
11/12/2012 6:52:42 PM
Class Irene Turay
Modified:11/12/2012 7:00 PM
Discretionary fixed costs are those fixed costs that
arise from annual decisions by management to spend
in certain fixed cost areas, for example advertising and
research.

committed fixed costs cannot be easily change in a brief

period. for example mechanic needs a garage before he can
fixed cars

mixed costs contain both variable cost and fixed cost

element.

Irene
and Professor Backman 11/13/2012 3:07:47 PM
Class
How does the concept of relevant range impact the definition of
variable and fixed costs?

RE:
Irene
11/13/2012 11:53:58 PM
and Jodi Serino
Class
According to our study material, at the end of page 128
under the subtopic of Relevant Range, it is stated that the
estimates of fixed and variable costs are valid for only a
limited range of activity. The relevant range is the range of
 activity from which accurate estimates and predictions are
gained. Any amounts given outside of this range are not
accurate.

RE:
Irene
11/14/2012 11:37:41 AM
and Bobbie O'Neal
Class
Modified:11/14/2012 11:39 AM
I believe the concept of relevant range impact the definition
of fixed costs are expenses whose total does not change in
proportion to the activity of a business, within the relevant
time period. Variable costs by contrast change in relation to
the activity of a business such as sales or production volume.
Both variable costs and fixed costs make up one of the two
components of total cost. In the most simple production
function, total cost is equal to fixed costs plus variable costs.

RE:
Irene
11/14/2012 10:35:03 PM
and Ashley Taylor
Class
Fixed and variable costs are only valid for a limited range of
time, called relevant range. According to the book relevant
range is, the range of activity for which estimates and
predictions are expected to be accurate. (Jiambalvo 128)
This impacts variable and fixed costs because out side
the relevant range the numbers are no longer useful. The
book also states, managers are often not confident using
estimates of fixed and variable costs when called upon to
make predictions for activity levels that have not been
encountered in the past. Since the activity levels have not
been encountered in the past, past relations between cost and
activity may not be a useful basis for estimating costs in this
situation. (Jiambalvo 128-129)

Jiambalvo. Managerial Accounting, 4th Edition. John Wiley

& Sons.
 11/18/2012 5:38:39
Ashley Professor Backman
AM
Can you provide an example of what happens to
breakeven point when a company would change
either the sell price, variable cost or fixed costs?
Thanks

RE: 11/18/2012 10:48:11

Ashley Ashley Taylor PM
The break even point would have to be
changed. The costs would
either increase such would be the case if
the variable or fixed costs were raised.
They would no long break even because
they would be paying more but not making
more money.

RE: 11/18/2012 7:23:32

Ashley Irene Turay AM
professor the contribution margin will
cause the companies to be able to increase
its selling prices. companies must be also
careful that increasing selling price does
not cause fewer unit sales.

RE:
11/12/2012 8:57:39 PM
Class Cheryl Hurdle
Discretionary fixed cost are those fixed cost that management can easily
change in the short run. Examples are advertising research and development
and repair.
Committed fixed cost are those fixed cost that can not be easily changed in a
relatively brief period of time. Examples are depreciation buildings and
equipment.
Mixed cost are cost that contain both a variable cost element and fixed cost
element. These cost are sometimes referred to as semivariable cost.
Examples is a sale person may be paid 80,000 per year (fixed amount) plus 1
percent of sales (variable amount. In this case the sales person total
compensation is mixed cost.
Relevant Range refers to a specific activity level that is bounded by a
minimum and maximum amount. Within that range of activity, certain
revenue or cost levels can be expected to occur. Examples are budgeting and
Cost Accounting.

Managerial Accounting pg 122

http://accountingtool.com

Cheryl
Well Professor Backman 11/14/2012 12:18:29 PM
Done
What are some examples of variable and fixed costs? Why is it
important to know these costs in business?

examples
of
variable
William Hines Iv 11/14/2012 8:44:10 PM
and
fixed
costs
Some examples of variable costs for me in a restaurant
would be food costs and staff hourly wages. During busy
times my food costs would increase because I need to order
more food. During the slower times it would be lower
because of less customers. This is especially true around this
time of year as we approach the holidays. The fixed costs
would be the rent that is owed on the building, the utility
costs if you are on a budget plan, and managers salaries to
name some.

RE:
Cheryl
11/14/2012 3:07:06 PM
Well Joshua Robinson
Done
Fixed costs are costs that are independent of output. Fixed
costs often include rent, buildings, machinery, etc.

Variable costs are costs that vary with output. Generally

variable costs increase at a constant rate relative to labor and
capital. Variable costs may include wages, utilities,
materials used in production, etc.
 (source: Text & lecture notes)

RE:
Cheryl
11/15/2012 7:01:43 PM
Well Stacey Wilson
Done
Examples of variable costs, costs in relation to sales, like the
cost of nails for a building contractor or paper for a printing
company. Fixed cost would be salaries and rent. It is
important to know the difference between the two, and to
know about them because they are apart of controlling costs
and controlling costs is a key element to the success of any
business.

11/16/2012 4:04:25
Stacey Professor Backman
AM
How does a business go about changing break even
point? Provide an example. Thanks

Changing
the
11/16/2012 2:42:40
Break- Casey Agans PM
Even
Point
Professor,

A company could change their break-even

point by altering the products and services
currently offered. Changing the offerings
may impact the break-even point because
some products have higher contribution
margins than others.

RE: 11/16/2012 8:28:59

Stacey Sandrea Igess PM
A company can reduce the
break even point by reducing
 their fixed costs amount.
Example:
Lets say Ford cuts thousands
of salaried positions and
closes assembly plants that
aren't fully utilized, then
Ford is reducing its fixed
costs by hundreds of millions
of dollars each year. Since
the fixed costs are lowered
fewer car sales are needed to
cover them.

11/18/2012 5:39:48
Sandrea Professor Backman
AM
How is contribution margin per
unit and contribution ratio used in
the break even point? Can you
provide an example of how to
calculate contribution margin
ratio?

RE:
11/12/2012 4:00:35 PM
Class Joshua Robinson
1. Discretionary fixed costs are those fixed costs that management can
easily change in the short run. Examples include advertising, research and
development, and repair and maintenance costs.
2. Committed fixed costs, however, are those fixed costs that cannot be
easily changed in a relatively brief period of time. Such costs include rent,
depreciation of buildings and equipment, and insurance related to buildings
and equipment.
3. Mixed costs are costs that contain both a variable cost element and a fixed
cost element. These costs are sometimes referred to as semivariable costs.
For example, a salesperson may be paid $80,000 per year (fixed amount) plus
commissions equal to 1 percent of sales (variable amount). In this case, the
salespersons total compensation is a mixed cost. Note especially that total
production cost is also a mixed cost since it is composed of material, labor,
and both fixed and variable overhead cost items
4.The relevant range is the range of activity for which estimates and
predictions are expected to be accurate.
(source: Managerial Accounting 4th edition, Jiambalvo, James, pages 122-
123)

RE:
11/12/2012 12:54:14 PM
Class Bobbie O'Neal
Modified:11/12/2012 12:58 PM
Mixed costs are costs that contain both a variable cost element and a fixed cost element. These costs are sometimes referred
to as semivariable costs. For example, a salesperson may be paid $80,000 per year (fixed amount) plus commissions equal to
1 percent of sales (variable amount). Discretionary fixed costs are those fixed costs that management can easily change in
the short run. Examples include advertising, research and development, and repair and maintenance costs.
Committed fixed costs, however, are those fixed costs that cannot be easily changed in a relatively brief period of time. Such
costs include rent, depreciation of buildings and equipment, and insurance related to buildings and equipment.

Managerial accounting, 4th edition. John Wiley & Sons, Inc., page122

RE:
11/12/2012 1:50:55 PM
Class Sandrea Igess
Discretionary fixed costs are fixed costs that management can easily change
in the short run.
Example: marketing and travel, advertising, machine maintenance, and
research & development expenditures

Committed fixed costs are costs that cannot be easily changed in a relatively
brief period of time.
Example: a restaurant needs to rent space and equipment before it can serve a
single customer.

Mixed Costs are costs that contain both a variable cost element and a fixed
cost element.
Example:an automobile is a classic example of a mixed cost for a service
business, Phone and Internet usage are a mixed cost for service businesses.

Relevant Range Relevant costs are those costs that will make a difference in a
decision.
Example: A company is deciding whether or not to eliminate a product
line. If the product line is eliminated, the officers of the corporation will
continue to receive the same salaries and the central office expenses will not
change. The product line managers and other employees working directly on
the product line will be terminated. Then, their salaries will be eliminated.

Sandrea Professor Backman 11/13/2012 3:08:43 PM

Exactly on Point. What are some ways to separate mixed costs into
their variable and fixed amounts? Which method is the most
accurate? Why?

RE:
11/16/2012 5:38:44 PM
Sandrea Cadette Batie
Prof;
The high-low calculation is similar but it uses only two of
the plotted points: the highest point and the lowest
point.Regression analysis uses all of the monthly electricity
bill amounts along with their related number of equipment
hours in order to calculate the monthly fixed cost of
electricity and the variable rate for each equipment hour.
Software can be used for regression analysis and it will also
provide statistical insights.There are three methods of
separating mixed costs presented in the chapter with their
strengths and weaknesses. They are as
follows: Regression, high-low and scatterplot
methods. The benefit of the scattergraph is that it allows
you to see if some of the plotted points are simply out of
line. These points are referred to as outliers and will need to
be reviewed and possibly adjusted or eliminated. In other
words, you dont want incorrect data to distort your
calculations under any of the three methods. However the
Account Analysis is the most common approach because it
requires that the manager use his or her professional
judgement to classify costs as fixed or variable.

RE:
11/14/2012 10:42:52 AM
Class Britney Womble
Thanks for posting Sandrea.

RE:
11/17/2012 8:09:32 AM
Class Tabitha Hofstetter
Sandrea,

Great examples and nice explanation! Relevant range relevant cost

example is a great example because most people do not realize what
happens once they eliminate a product. Right now I just heard on the
news about the maker of twinkie's going bankrupt. Now all those
people are with out work.
 Tabitha Professor Backman 11/18/2012 5:41:43 AM
How does a business go about changing breakeven point?
Provide an example of this business situation. Thanks

RE:
11/11/2012 9:30:41 AM
Class Elizabeth Erdos
1. Discretionary fixed costs are fixed cost that management can change easily
in the short run. An example would be repair and maintenance costs.
2. Committed fixed cost are the opposite of discretionary in that they cannot
be easily changed. An example would be rent.
3. Mixed costs contain a variable cost element and a fixed cost element. They
are also called semi-variable costs. An example could be a salesperson's
salary. They get a fixed amount + commission (variable)
4. Relevant range is the range of activity that estimates and predictions are
expected to be accurate.

RE:
11/11/2012 5:34:40 PM
Class Robert Kampen
SInce Elizabeth already did a great job in defing and providing
examples, I though I would address the questions posed at the
opening of this thread about using CVP analysis:

A number of assumptions underlie cost-volume-profit (CVP) analysis: These cost

volume profit analysis assumptions are as follows:

1. Selling price is constant. The price of a product or service will not change
as volume changes.

2. Costs are linear and can be accurately divided into variable and fixed
elements. The variable element is constant per unit, and the fixed element
is constant in total over the relevant range.

3. In multi-product companies, the sales mix is constant.

4. In manufacturing companies, inventories do not change. The number of
units produced equals the number of units sold.

While some of these assumptions may be violated in practice, the violations are
usually not serious enough to call into question the basic validity of CVP analysis.
For example, in most multi-product companies, the sales mix is constant enough so
that the result of CVP analysis are reasonably valid.

Perhaps the greatest danger lies in relying on simple CVP analysis when a manager
 is contemplating a large change in volume that lies outside of the relevant range.
For example, a manager might contemplate increasing the level of sales far beyond
what the company has ever experienced before. However, even in these situations
a manager can adjust the model as we have done in this chapter to take into
account anticipated changes in selling price, fixed costs, and the sales mix that
would otherwise violate the cost volume profit assumptions.

Jiambalvo. Managerial Accounting. 4. VitalSource Bookshelf. John

Wiley & Sons, , Sunday, November 11, 2012.
<http://online.vitalsource.com/books/9781118091050/id/L4-1-29>

Class
To
Add
Professor Backman 11/15/2012 9:19:39 AM
To
Your
Posts...
On relevant range. Relevant range is the range where fixed and
variable costs will stay consistent with their definitions and will not
change. For example: a variable cost of $2/unit will remain at that
amount during the relevant range. If variable costs goes up to $3/unit
then the relevant range has changed. The same is for fixed costs.

The relevant range is trying to establish some basic parameters for

the different cost definitions.

RE:
11/11/2012 7:59:39 PM
Class Hind Ganz
Mixed costs contain both a variable and fixed cost element, and sometimes
referred to as semivariable. A example would be if a salesperson got paid
50,000 per year at a fixed cost but have a 4% commission, which is a variable
cost. The salesperson and the total production costs are a mixed cost. If you
go outside the relevant range, the variable and fixed costs may not be useful.
If a manager want to only produce 6000 units, 7000 units would be outside
the relevant range.

RE:
11/12/2012 9:23:21 AM
Class Robert Kampen
I will agree with most of what you say here. Going outside the
relevant range is risky to begin with. That said, I do think there is
 some utility for looking into variable and fixed costs as a manager
because they can serve as the guide to reaching the "happy medium".

What
Do You Professor Backman 11/13/2012 3:09:55 PM
Think??
Can you be more specific on how a business would use CVP in
business?

How can CVP analysis help a manager make decisions on

discretionary expenses planning, product mixes, pricing policies,
market expansions or contractions, idle plant usage, outsourcing
work, and other planning process decisions.

RE:
What
11/18/2012 1:41:10 PM
Do You Robert Russo
Think??
A business could use CVP when planning out the structure
of how they will run their company, manufacture their
product, and sell their product. It will go into detail on how
much everything will cost on top of what the break even
point is and how they will profit.

RE:
What
11/14/2012 6:51:27 AM
Do You Bobbie O'Neal
Think??
I think the main reason businesses use CVP analysis is to
estimate how changes in selling price, sales volume, variable
cost per unit and fixed costs affect profits. A business can
also use CVP analysis to analyze existing or new business
opportunities to determine a break-even point and potential
profitability, including the sales volume required to reach a
target profit. Managers can use this information in
determining how to price products, how to market products
and how to produce products.

RE: Nicole Rochester 11/12/2012 12:40:23 AM

 Class
Discretionary fixed costs are costs that can be fixed in a short amount of time (i.e. advertisin,
research and development, repair and maintenance, etc.)

Committed fixed costs are the opposite of discretionary they cannot be fixed in a brief period
of time (i.e. rent, depreciation of building and equipment, etc.)

Mixed costs contain both a variable of cost element and a fixed cost
element (aka semivariable costs) (i.e. commisions equalling up to 1.0% are added to the
value of their home)

Relevant Range a particular range of activity may be fixed and estimates and predictions are
not expected to be accurate (i.e a manager may not feel comfortable using regression
estimates of a fixed cost).
(Jiambalvo, 2011, p.128)

vo, J. (2011). Managerial accounting, 4th edition. John Wiley & Sons, Inc., pages 121-122
and 128

Class Great
Start: Some
Professor Backman 11/12/2012 2:34:44 PM
Additional
Questions

What are variable costs, fixed costs and Mixed costs?

So how does a business separate mixed costs into their variable and fixed costs?
Provide some examples of each method?
Which method is the best? Why?

How does a business use variable and fixed costs to make decisions?

RE: Class
Great
Start:
Stephanie Motak 11/17/2012 12:00:46 PM
Some
Additional
Questions
Variable costs are costs that change in proportion to the changes in volume
and activity but the cost per unit remains constant. Fixed costs, on the other
hand, remains constant with changes in activity and/or volume. There are two
kinds of fixed costs : discretionary fixed costs and committed fixed costs.
Discretionary fixed costs are those that can be easily changed by management
in the short run without affecting the short run profit. Committed fixed costs
are those that cannot be easily changed in the short run without affecting the
profit. Mixed costs are cost that are like a mixture of both variable and fixed
costs. The way to solve for mixed costs is : total cost = fixed cost + (unit
variable cost x activity level).

RE: Class
Great
Start:
Britney Womble 11/17/2012 6:59:40 PM
Some
Additional
Questions
variable costs are costs that change in proportion to changes in volume or
activity. Thus, if activity increases by 10 percent, variable costs are assumed
to increase by 10 percent. Some common variable costs are direct and indirect
materials, direct labor, energy, and sales commissions. fixed costs are costs
that do not change in response to changes in activity levels. Some typical
fixed costs are depreciation, supervisory salaries, and building
maintenance. Mixed costs are costs that contain both a variable cost element
and a fixed cost element. These costs are sometimes referred to as
semivariable costs.

RE: Class
Great
Start:
Ashley Taylor 11/17/2012 9:52:34 PM
Some
Additional
Questions
Fixed costs are costs that do not change when there is a change in business
activity. Variable costs are costs that increase or decrease in proportion to
increases or decreases in business activity. A mixed cost is Mixed costs are
costs that contain both a variable cost element and a fixed cost element. These
costs are sometimes referred to as semivariable costs. For example, a
salesperson may be paid $80,000 per year (fixed amount) plus commissions
equal to 1 percent of sales (variable amount). In this case, the salespersons
total compensation is a mixed cost.

Jiambalvo. Managerial Accounting, 4th Edition. John Wiley & Sons.

RE: Class
Great Robert Kampen 11/14/2012 6:51:10 AM
Start:
Some
Additional
Questions
Businesses use the variable and fixed costs as a measure of budget
requirements as well as forecast future expenses vs profit margins.

RE: Class
Great
Start:
Nicole Rochester 11/13/2012 1:14:03 PM
Some
Additional
Questions
Variable Costs are costs that change according to volume or activity
(Jiambalvo, 2011 p. 120)

Fixed costs are on the contrary they do not change according to volume or
activity.

Mixed costs are costs that contain variable and fixed costs.

I do not know the answer, but can only guess that it depends on the different
aspects that they want to divide things up. In other words, if you have rent
for the office building, salaries, office equipment, production costs these will
go under different sections of the income statement. You have manufacturing
costs which consists of product costs: direct material, direct labor and
overhead manufacturing costs and then you have those that fall under period
costs. Basically it depends on how a company wants to itemize.

RE: Class
Great
Start:
Jodi Serino 11/12/2012 9:50:05 PM
Some
Additional
Questions
Variable costs are costs that change in proportion to changes in volume or
activity an example of a variable cost is the cost of fuel which fluctuates
often.

Fixed costs are costs that do not change in response to changes in activity
levels an example of which is salaries of employees or cost of rent.

Mixed costs are costs that contain both elements of variable and fixed costs.
They are also called semivariable and a good example of this is a sales
position in which an employee will earn both a fixed amount plus a
commision that fluctuates based on sales.

J. Jiambalvo (2010) Managerial Accounting. (4th Edition, pgs 120-122)

RE: Class
Great
Start:
Bobbie O'Neal 11/15/2012 9:39:28 AM
Some
Additional
Questions
Fixed costs include such expenses as rent, insurance, dues and
subscriptions, equipment leases, payments on loans, depreciation,
management salaries, and advertising. Variable costs are those that
respond directly and proportionately to changes in activity level or
volume, such as raw materials, hourly production wages, sales
commissions, inventory, packaging supplies, and shipping costs.

Jodi
and
Bobbie Professor Backman 11/17/2012 8:02:57 AM
Well
Done
How do committed fixed costs impact a business? How
would discretionary fixed costs impact a business?

RE:
Jodi
and 11/17/2012 11:36:12
Bobbie Casey Agans PM
Well
Done
The business already understands that the
committed fixed costs are long term assets that are
not easily changed. Items such as property taxes,
salaries for your controller and CEO, and building
purchases all align under these types of costs and
are commonly well researched before jumping in.
Although discretionary fixed costs may not be
considered long term, that doesn't mean they don't
hold an important place in business. The
discretionary fixed costs could include research and
 development, along with repair and maintenance - if
either are cut back drastically, then the business
may ultimately suffer.

RE:
Jodi
and 11/18/2012 7:40:29
Bobbie Jodi Serino PM
Well
Done
Actually Casey, I am not sure that salaries
would be included in committed fixed
costs, Im not saying that they are not, Im
just saying that I am not sure that they are.
The reason being is that salaries are
changed (lowered or raised) at any given
time as it is approved of but that is not the
case with items such as rent which is
contractual or even insurance payments on
the building or equipment as the reading
material mentions on page 122. The way
that committed fixed costs impact a
business is that when cuts need to be made
these costs will not be the first to be looked
at because they cannot be easily cut on
short term like the discretionary costs can.

Discretionary fixed costs are costs that a

company has a measure of control over and
thus it would be no real hardship in cutting
back on them. An example of such is
Advertising. Because it is up to the
company whether or not they want to
advertise and how much they are willing to
spend on advertising (more or less) this is
considered a discretionary cost. This is the
same when it comes to repairs and
maintenance. One month there might be
funds available to make repairs or take care
of the maintenance of equipment whereas
other months there might not be funds
available. Because it can easily be changed
these items are called discretionary fixed
items.
 RE: Class
Great
Start:
Bobbie O'Neal 11/13/2012 6:36:39 AM
Some
Additional
Questions
What are variable costs, fixed costs and Mixed costs? Mixed costs are costs which contain
both a variable and a fixed element. The fixed element is the basic charge for having the service ready and available for use.
The variable element is the actual consumption charge. An example of a mixed cost is the cost of a large capacity copier
machine leased at $1,000 per month plus $.01 per copy. Mixed costs can be represented by the equation Y = a + bX

Y = Total Cost
a = Total Fixed Cost
b = Unit Variable Cost
X = Activity Level

RE: Class
Great
Start:
Robert Kampen 11/13/2012 7:37:30 AM
Some
Additional
Questions
The term mixed costs often refers to the behavior of costs and
expenses. Mixed costs consist of a fixed component and a variable
component. The annual expense of operating an automobile is a
mixed cost. Some of the expenses are fixed, because they do not
change in total as the number of annual miles change. Think
insurance, parking fees, and some depreciation. Other expenses are
variable, because they will increase for the year when the miles
driven increase (and will decrease when the miles driven decrease).
Think gas, oil, tires, and some depreciation.

The algebraic formula for a mixed cost is y = a + bx, where y is the

total cost, a is the fixed cost per period, b is the variable rate per unit
of activity, and x is the number of units of activity. For the annual
expense of operating an automobile, the fixed cost, a, might be
$5,000 per year; the variable rate, b, could be $0.20; and the number
of units of activity, x, might be 15,000 miles per year. With these
hypothetical assumptions, the annual expense, y, would be $8,000. If
x were 10,000 miles, the annual expense y would be $7,000.

CVP
Cadette Batie 11/12/2012 6:29:08 PM
Analysis
Prof;
 Whenever CVP analysis is performed, a number of
assumptions are made that affect the validity of the analysis. The
primary assumption is that costs can be accurately separated into
their fixed and variable components. A further assumption is that
the fixed costs remain fixed and the variable costs per unit do
not change over the activity levels of interest.

RE: CVP
11/13/2012 6:52:43 AM
Analysis Bobbie O'Neal
CVP deals with how operating profit is affected by changes in variable costs,
fixed costs, selling price per unit and the sales mix of two or more different
products. CVP analysis also have the following assumptions that all cost can
be categorized as variable or fixed cost. Sales price per unit, variable cost per
unit and total fixed cost are constant and that all units produced are sold.

RE:
CVP Britney Womble 11/13/2012 9:43:51 AM
Analysis
Thanks for posting Bobbie. I understand this better now

Britney Professor Backman 11/17/2012 8:04:24 AM

Would middle management salaries be a committed or
discretionary fixed cost? As a business downsizes or cut cost
could they let the middle manager and its salary go and what
does this do to break even point?

RE: 11/17/2012 2:23:22

Britney Cadette Batie PM
Prof;

Committed Fixed Costs stem from an

organizations commitment to engage in operations
and continue into the future while Discretionary
Fixed Costs originate from top managements
yearly spending decisions; proper planning can help
 avoid these costs if cutbacks become necessary or
desirable. So based on the definitions above I
would say that Middle Management salaries are
Committed Fixed Costs. However on the long
range of things most Upper management salaries
are discretionary. I know I will be berated for this
line of thinking but middle management is a far less
commitment than that of upper management
because middle management simply are the go
between for lower and upper management while
upper management is there to say how the money is
spent and to open factories and store locations and
acquire inventory and such things whereas middle
management tends to work more with the
distributors and retailers to get the merchandise to
the retailers.

RE: 11/17/2012 3:31:44

Britney Rachel Labs PM
Berated? No, I think your thoughts are
positively correct. Middle managers would
not like to hear it, but in some cases they
are 'extra' - extra in the sense that lower
and upper management could do their work
if needed, but middle management's job
does balance out duties and prevents little
issues from 'bothering' the upper
management. And yes, I do agree that
middle managers would be considered
Committed fixed costs because you cannot
decide one day that they can wait to be paid
til next pay-period like they could do with
repairs.

At my job now, I am the administrative

assistant, and when something breaks or
goes bad we literally put it on a priority-
repair list - what needs to be repaired
immediately and what can wait 'til next
month.. You cannot do so with actual
people.

RE: 11/18/2012 5:44:41

Britney Casey Agans AM
 Britney & Cadette,

I am going to take the opposing

argument and say that middle
managers salaries are discretionary
fixed costs. I say this because of
the key words that lie in the
definition. Discretionary fixed
costs: fixed costs that management
can easily change in the short run.
Top management and the board of
directors have the ability to layoff
and/or cut jobs if needed. As we
know, these decisions may be
shortsighted because middle
managers have a valid role in
business but the argument is that
these costs can be changed much
more easily than say rent,
depreciation, & insurance.

Cadette Professor Backman 11/18/2012 5:42:57 AM

So what does margin of safety really tell management??

CVP Elizabeth Erdos 11/12/2012 8:26:10 PM

CVP is also known as cost-volume-profit analysis. The basic assumptions are that cots
can be separated into their fixed variable component. Another assumption is that fixed
costs will remain fixed and variable costs should not change during the analysis.
Managers find it useful for looking at different profit targets and performing what if
analysis.

RE:
11/15/2012 5:49:46 AM
CVP Bobbie O'Neal
Elizabeth, Cost-volume-profit (CVP) analysis is used to determine how
changes in costs and volume affect a company's operating income and net
income. In performing this analysis, there are several assumptions made,
including: Sales price per unit is constant. Variable costs per unit are
constant. Total fixed costs are constant. Everything produced is sold. Costs
are only affected because activity changes. If a company sells more than one
product, they are sold in the same mix.
Bobbie Professor Backman 11/16/2012 4:06:05 AM
Can you provide an example How a business would change break
even point?

RE: 11/17/2012 10:34:31

Bobbie Bobbie O'Neal AM
Profit-volume-cost analysis is a powerful tool that estimates
how a business's profits change as the sales volumes change.
It can also help estimate the breakeven point. A breakeven
point is the sales revenue level that produces zero profits. If
your revenue is below the breakeven point, your business is
running at a loss.
breakeven point (in sales revenue) = fixed costs / gross
margin percentage

RE:
11/17/2012 11:37:03 PM
Bobbie Darion Maynor
There are several reasons why a companys break-even
point will increase. One reason is an increase in the
companys fixed costs, such as rent, depreciation, salaries of
managers and executives, etc.

A second reason for an increase in a companys break-even

point is a reduction in the contribution margin. Contribution
margin is sales minus the variable costs and variable
expenses. An increase in the variable costs and expenses
without a corresponding increase in selling prices will cause
the contribution margin to shrink. With less contribution
margin, it will take more sales in order to cover the fixed
costs and fixed expenses. Of course, a decrease in selling
price will also increase the break-even point.

Another reason for a change in the break-even point is a

change in the mix of products or services delivered. In other
words, some products have higher contribution margins, and
some products have lower contribution margins. If a
company continues to sell the same total number of units of
product, but a greater proportion of the units sold have a
lower contribution margin, the companys break-even point
 will increase.

http://blog.accountingcoach.com/break-even-point/

Cost-
Volume-
Britney Womble 11/13/2012 9:36:50 AM
Profit
Analysis
"These patterns may not provide exact descriptions of how costs behave in response to changes in
volume or activity, but they are generally reasonable approximations involving variable costs, fixed
costs, mixed costs, and step costs." (Jiambalvo)
Source: Jiambalvo (P. 120). Managerial Accounting [4] (VitalSource Bookshelf), Retrieved from
http://online.vitalsource.com/books/9781118091050/id/P4-14

How CVP might help managers make decisions is because they will buy items that would give them a
profit and not lose any money

RE:
Cost-
Volume- Casey Agans 11/13/2012 2:51:15 PM
Profit
Analysis
Britney,

I'm not sure I am following your last statement? Could you elaborate? It is my
understanding that mangers utilize CVP analysis to be knowledgeable in
areas such as their break-even point, variable cost estimates, margin of safety,
and so on. Having this information for a manager is pivotal as it can leverage
choices for increasing/decreasing production.

RE:
Cost-
Volume- Britney Womble 11/14/2012 10:07:31 AM
Profit
Analysis
"To perform cost-volume-profit (CVP) analysis, you need to know how costs
behave when business activity (e.g., production volume and sales volume)
changes. This section describes some common patterns of cost
behavior." (Jiambalvo)
Source: Jiambalvo (P. 120). Managerial Accounting [4] (VitalSource Bookshelf),
Retrieved from http://online.vitalsource.com/books/9781118091050/id/P4-14
Class Very
Nice Professor Backman 11/13/2012 3:06:50 PM
Discussion

What is Break-Even Point?

How do we calculate break-even point?
What is contribution margin?
How is break-even point used in business?

How are these concepts used in business? Give examples when appropriate.

RE: Class
Very Nice Britney Womble 11/14/2012 10:35:33 AM
Discussion
1. The break-even point is the number of units that must be sold for a company to break
evento neither earn a profit nor incur a loss. (P.130)
2. Equation that states that profit is equal to revenue (selling price times quantity) minus
variable cost (variable cost per unit times quantity) minus total fixed cost. (P.130)
3. The contribution margin per unit measures the amount of incremental profit generated by
selling an additional unit. (P133)
4. At the point where sales revenue equals total cost (composed of fixed and variable costs),
the company breaks even. (P.130)
5. Contribution margin - The firm benefits from revenue equal to the selling price, but it also
incurs increased costs equal to the variable cost per unit. Fixed costs are unaffected by
changes in volume, so they do not affect the incremental profit associated with selling an
additional unit. (P.133)

Source: Jiambalvo (). Managerial Accounting [4] (VitalSource Bookshelf), Retrieved from
http://online.vitalsource.com/books/9781118091050/id/L4-3-18

RE: Class
Very Nice Hind Ganz 11/13/2012 4:16:38 PM
Discussion
I just figured out how to do it from the weekly assignment. The break even
formula is:

Profit= SP(x)-VC(x)-TFC

A company needs to figure out its break-even point in order to know how
many units they need to sell to break even. The contribution margin is the
difference between the selling price and variable cost per unit.

Hind Professor Backman 11/15/2012 9:17:30 AM

 Let's look at fixed costs and break even point further. How does a
company calculate contribution margin, give an example? So what
does contribution margin mean? Give a numerical example of how
contribution margin is used in break even analysis?

RE:
11/17/2012 9:50:27 AM
Hind Bobbie O'Neal
How does a company calculate contribution margin, give an
example? Contribution margin helps gauge the success or
failure of company's product line by allowing the
comparison of one line's profitability to another. If one
product has a higher contribution margin than another, the
manager has a few options: they may aim to reduce the
variable cost or increase the sale price to increase the
contribution margin. Or they may discontinue the line
altogether. Contribution Margin = Revenue - Variable Cost
So what does contribution margin mean? A cost accounting
method that allows a company to determine the profitability
of individual products.
X = ($100.00 + $200.00 ) / $10.00
X = $300 / $10.00
X = 30 units

RE:
11/17/2012 6:56:57 PM
Hind Britney Womble
contribution margin per unit measures the amount of incremental profit
generated by selling an additional unit.

"If you sell CDs at $25 on the internet and promote it as No postage &
packaging, your calculation could look like this:

Sales price 25.00 $.

- Purchase price at CD company: 18.75 $
- Packaging and padded envelope: 01.00 $.
- Postage: 02.00 $.
= Contribution margin: 03.25 $ (13 %)

Source: http://www.dynamicbusinessplan.com/contribution-margin-
example/

RE: Class
Very Nice Elizabeth Erdos 11/13/2012 5:43:29 PM
Discussion
The break-even point is the number of units that has to be sold in order for a
company to break even, or not incur a loss or profit. To calculate the Break-
even point you set the profit equation equal to zero then insert
the appropriate selling price, variable cost and fixed cost information and
solve for the quantity.
The contribution margin measures the amount of incremental profit generated
by selling an additional unit. Companies use these to make sure that they
aren't going into the hole. They aren't necessarily looking for huge gains they
are just looking to make sure they don't make losses.

RE: Class
Very Nice Bobbie O'Neal 11/14/2012 6:39:37 AM
Discussion
The break-even point (BEP) is the number of units that must be sold for a company to break even . The break-even
point can be calculated with the basic profit equation:
Profit = Selling Price(Q) - Variable Cost(Q) - Fixed Cost

RE: Class
Very Nice Sharon Garcia 11/17/2012 10:35:11 AM
Discussion
The break -even point is the amount of units that must be sold to break even.

You calculate the break-even point by this equation: Profit=Price(x)-variable

cost(x)-Fixed cost.

The contribution margin is the sales minus the variable cost or the difference
between the to.

The break-even is used in business to see what the company has to sell to
break-even, its an estimate.

RE: Class
Very Nice Cheryl Hurdle 11/17/2012 12:32:45 AM
Discussion
The break even point is the price at which an option cost is equal to the
proceeds acquired by exercising the option. The volume of sales at which a
company nets sales just equals it cost.
A company's break even point is the point at which its sales exactly cover its
expenses.
To calculate a company's break even point in sales you to know the value of
the following;
Fixed Cost
Variable Cost
Price of Product

Contribution margin is defined as the difference between revenue and

variable cost. Contribution margin is what is left over after we subtract
variable cost from revenues, the contribution margin ratio is the proportion of
revenues left to cover fixed cost and profits.

http://plu.edu
http;//bizfinanceabout.com

RE: Class
Very Nice Alison Richards 11/18/2012 12:52:32 PM
Discussion
In order to make smart business decisions you need to know analysis
in order to do so. Using variable costs and fixed variables allows you
decision making to a whole other different level. When you use CVP
analysis it helps answering any questions that are in reference to
business daily operations. Both fixed and variable costs are by means
of examining the relationship in means of volume and profits.
Variable costs are within the categories of cost of goods sold, sales
commissions, charges to include shipping and delivery, along with
costs in association of direct material as well as cost of direct supplies.
Whereas fixed costs are within the categories of rent, the interest on
debt, insurance, and as well as expenses in areas such as plant and
equipment. Rent is known as fixed costs as rent is being paid upon a
month to month basis. Overall knowing the variable costs as well as
fixed costs for a given business it helps as well as knowing the
entirety of determining your breakeven points. At that point, the
volume of sales will be determined that will be able to cover the costs.
Increasing fixed costs helps with the computing of new breakeven
points. This concept comes into play for example if a company went
undergo of a major expansion within their project. When we used
fixed costs and variable costs we can utilize the break event point
formulas as follows:
Sales Price per Unit Variable Costs per Unit = Contribution
Margin per Unit
Contribution Margin per Unit divided by Sales Price per Unit =
Contribution Margin Ratio
Breakeven Sales Volume = Fixed Costs divided by Contribution
Margin Ratio
 RE: Class
Very Nice Nicole Rochester 11/18/2012 3:01:19 PM
Discussion
Break-even Point is the number of units thatmust be sold for a company to break even to
neither earn a profit or incur a loss. It is calculated as follows: Profit = SP(x) - VC(x) - TFC;
profit equation is set to equal 0 because that is what break-even means it is at which profit is
then appropriate selling prices, variable cost and fixed costs are inserted and solved for
(x). Break-even Point is used in business in order to see if a loss or profit has been
incurred. Contribution margin measures per unit the amount of incremental profit generated
by selling an additional unit.

Formula for Contribution margin:

Profit = SP (x) - VC(x) - TFC
Profit = (SP - VC) (x) - TFC
Profit = Contribution margin per unit (x) - TFC
(Jiambalvo, 2011)

Jiambalvo, J. (2011). Managerial accounting, 4th edition, John Wiley & Sons, Inc., pages 130
& 131

RE: Class
Very Nice Stephanie Motak 11/18/2012 6:11:21 PM
Discussion
The break-even point is the point at which cost or expenses and revenue are
equal: there is no net loss or gain, and one has "broken even". A profit or a
loss has not been made, although opportunity costs have been "paid", and
capital has received the risk-adjusted, expected return.

CVP Cheryl Hurdle 11/13/2012 5:14:32 PM

The cost volume profit analysis assumptions are as followed:

Selling price constant

Cost are linear and can be accurately divided into variable and fixed elements
In multi product companies the sales mix in constant
In manufacturing companies inventories do not change. The number of units
produced equals the number of units sold.

CVP analysis provides managers with the advantages of being able to answer specific
pragnetic questions needed in business analysis
Another major benefit of CVP analysis is that it provides a detailed snapshot of
company activity. This includes everything from the cost needed to produce a product
to the amount of the product produced.
http://smallbusiness.chron.com

Class
GREAT Professor Backman 11/14/2012 12:16:01 PM
Posts!!
What are companies doing in the current economy to adjust break even point? What
happens to the breakeven point when a company starts to cut variable and fixed costs?

As volume increases what is the impact on fixed costs?

How can a company use the break even point concept to target a profit level?

How would increasing or decreasing selling price change break even point?

Please provide some examples in your discussion. Thanks!!

RE:
Class
11/14/2012 6:25:47 PM
GREAT Angelique Kalnes
Posts!!
By adjusting break even points, companies in the current economy are
determining what the costs are and how to cover the costs of running a
business. To do this they can increase their output, change prices, introduce a
new product line or even enter a new market. When the company starts to cut
variable and fixed costs, they are beginning to turn a profit.

If a price is lowered it effects the break even point by making it harder to

reach making profit. If I have a knitting business and my items are not selling
at the rate I thought they would, I may have to lower my prices just to get the
items out the door. If this happens, I will decrease my chances of making a
profit because of the low price and the cost of manufacturing and supplies
hadn't decreased to account for this price change.

RE:
Class
11/14/2012 3:32:30 PM
GREAT Tabitha Hofstetter
Posts!!
As volume increases the impact on fixed cost is they should be the same until
about 20-30% increase then you might see higher fixed cost.
Example: Delivery truck carries 200 packages, but can hold 300 packages.
They wouldn't have to buy a new truck until they have over 300 packages to
deliver.

Increasing the selling price would mean you would have to sell less to hit the
break even point and if you decrease the price you'll have to sell more to hit
break even point.
So if we have a company that has a selling price of 20 dollars and they
usually have a break even point of 1000 to total $20,000 with the cost of
produce is $10 per unit.

If we increase the price to $30 then we will be totaling $30,000

If we decrease the price to $15 then we will be totaling $15,000

RE:
Class
11/14/2012 8:50:17 PM
GREAT Marvette Williams
Posts!!
In order to adjust the break even point companies are decreasing their cost
across the board fixed and variable cost will be cut. When these cost are
decreased it increases the potential to reach the break even point. Some
companies cut salaries, budgets and overhead cost for example.

Volume increase will normally increase fixed cost. In the more recent years
companies have found ways around increase certain fixed cost like real estate,
utilities and even payroll. These business are using the internet to do this.
Which the internet is allowing them to increase volume and reduce fixed cost.
Let's take DeVry for example. The university doesn't have a multitude of
physical locations, but they reach more students by providing them with
online courses. DeVry has increased volume, but cut the fixed cost.

RE:
Class
11/16/2012 2:51:08 PM
GREAT Casey Agans
Posts!!
Marvette,

Less infrastructure, minimal change in teachers wages, yet the price

of tuition keeps increasing. For-profit institution all the way.

Marvette Professor Backman 11/17/2012 8:01:25 AM

Can you provide an example of how to calculate margin of safety
 and contribution margin? How is contribution margin used in CVP
analysis? How is the contribution margin used in determining break
even point?

RE:
Class
11/18/2012 8:24:38 PM
GREAT Hind Ganz
Posts!!
Fixed costs will not change until you review them the following year. If you
were to increase or decrease the selling point it would change your break even
but more so if it lessens, rather then decreased. The break even point is
obviously not where you want to be, if so you are not making a profit.

WK 3 DQ
11/14/2012 3:19:12 PM
1 Response Tabitha Hofstetter
The five elements of CVP are: Prices of products, Volume of level of activity, Per unit
variable cost, Total fixed cost, and Mix of product sold.

CVP analysis shows the interrelationships among cost, volume, and profit.

They help make decisions about what products to sell or manufacture, what pricing
policy to follow, what marketing strategy to use, and what type of productive facilities
to acquire. Also it allows managers to make decisions on planning what the next steps
are for to keep the business running smoothly and effectively.

RE: WK
3 DQ 1 Angelique Kalnes 11/18/2012 6:43:40 PM
Response
Tabitha, I agree with your answer. They help with planning for the future to
avoid spending time and money figuring out the details during a period.

Discuss the
basic
assumptions
of CVP
Leon Kiyonga 11/14/2012 10:24:15 PM
analysis and
how we can
use CVP
analysis as
 mangers in
making d
The basic assumptions of CVP analysis are as follows: -

1) The selling price of the product is fixed. In simple words with the change in quantity

the price of the product will not change

2) The cost are arranged in such a way that it can easily be divided into variable and

fixed costs.

3) The company which produces varieties of product will have its sales mix constant.

4) The company who is into manufacturing will have a fixed inventory. The amount of

quantity that the company produces is the amount of quantity that company sales.

Class
Excellent Professor Backman 11/15/2012 9:12:36 AM
DIscussion

What is operating leverage? Why is operating leverage important in business?

How do fixed costs influence operating leverage?

What is margin of safety?

How is break even calculated when a business has multiple products that they sell?

What is the difference between contribution margin and contribution margin ratio?

Give examples when appropriate

RE: Class
Excellent Tabitha Hofstetter 11/16/2012 9:58:11 AM
DIscussion
Contribution margin is the marginal profit per unity sale.
Contribution margin ratio is the percentage of the contribution over the total
revenue.

RE: Class
Excellent Cheryl Hurdle 11/16/2012 11:00:51 AM
DIscussion
Operating leverage measures a firms fixed versus variable cost. The greater
proportion of fixed cost, the greater the operation leverage. Operating
leverage magnifies results, making gains look better or losses worse.

Operating leverage is important to a company because if the operating

leverage is high then the smallest percentage change in sales can increase the
net operating income. The impact of the leverage on the percentage can be
quite striking if not taken serious, therefore it is important if you have a
higher degree of operating leverage or DOL then you should try to balance
the operating leverage to the financial leverage in order to balance the profits
to the company.

http://readyratios.com

RE: Class
Excellent Rachel Labs 11/18/2012 4:10:01 PM
DIscussion
The break even formula for a company that sells more than one item will be
elongated. You would have to calculate each selling and variable cost per unit
per every item and the subtract the total fixed costs at the end.

RE: Class
Excellent Joshua Robinson 11/15/2012 3:19:38 PM
DIscussion
Operating leverage relates to the level of fixed versus variable costs in a
firms cost structure. It is an indicator of the quality of the earnings of a firm.

Firms that have relatively high levels of fixed cost are said to have high
operating leverage.

The margin of safety is the difference between the expected level of sales
and break-even sales.
Margin of safety = Expected sales Break-even sales
 This can be used when a company has mulitple products it sells: The
contribution margin ratio measures the amount of incremental profit
generated by an additional dollar of sales. It is equal to the contribution
margin per unit divided by the selling price. The contribution margin per unit
measures the amount of incremental profit generated by selling an additional
unit.

Joshua Professor Backman 11/17/2012 8:00:19 AM

Can committed or discretionary fixed costs be eliminated when
making business decisions? How do committed or discretionary
fixed costs impact contribution margin?

RE: Class
Excellent Casey Agans 11/16/2012 2:59:00 PM
DIscussion
Cheryl & Joshua,

I agree with your points regarding operating leverage. We should add

that operating leverage can prove risky because of fluctuations in
profit due to fluctuations in sales. There are ways however of
increasing fixed costs to increase operating leverage, such as
investing in an automated production system.

break
Irene Turay 11/15/2012 3:30:02 PM
even
For the break even point if a price of material cost increased your break even point
will increased. If the break even increased then your margin of safety will decreased.

CVP Leon Kiyonga 11/16/2012 1:14:45 AM

CVP analysis is the tool from which a manager can find the link between the cost,

profit and volume. In long run CVP helps in employing marketing strategy such as

what to produce, when to produce, how to produce and the pricing strategy too. The
manager learns about the viable profit for the product in the future.

Here Are
Some
Problems
To Help Professor Backman 11/16/2012 4:02:29 AM
With The
Concepts
This Week
Exercises 4-11, 4-12, 4-13, 4-14, 4-15.

Once someone has answered a question then move on to the next question. Thanks

I will release the answers on Saturday night.

4-
11/16/2012 11:51:42 AM
11 Angelique Kalnes
EXERCISE 4-11. CVP Analysis [LO 3] Gabbys Wedding Cakes creates
elaborate wedding cakes. Each cake sells for $600. The variable cost of
making the cakes is $250, and the fixed cost per month is $7,700.

a. Calculate the break-even point for a month in units.

Profit = 600x - 250x - 7,700 and you solve for x = 9.06 units/month

b. How many cakes must be sold to earn a monthly profit of $10,000?

10,000 = 850x - 7,700 and solve for x = 20.82 units/month

Wrap Up
For Cost-
Volume- Professor Backman 11/17/2012 7:58:46 AM
Profit
Analysis
Wrap Up: Cost-Volume-Profit (CVP)

There are several costs that impact CVP.

Variable costs are cost that change in proportion to changes in volume or activity.
Fixed costs are costs that do not change in response to changes in activity levels.
Discretionary fixed costs are costs that management can change in the short run.
Committed fixed costs are costs that cannot be changed.
Mixed costs are costs that contain both fixed and variable costs.

There are three techniques that can help us separate the mixed costs into their variable
and fixed costs. The techniques are High/Low, Scattergraphs, and Regression analysis.
Of the three techniques the regression analysis method is the most accurate because it
is a statistical technique that uses all the available data points to determine variable
and fixed costs.

Step Costs are those costs that are fixed for a range of volume but increase to a higher
level when the upper bound of the range is exceeded.
Relevant Range is the range activity for which estimates and predictions are expected
to be accurate.
Margin of Safety is the difference between the expected level of sales and break-even
sales.
Contribution Margin (CM) is the difference between the selling price/unit and the
variable cost/unit. The CM is available to cover fixed costs. The CM ratio is just the
CM in dollars divided by the Sales dollars.

Operating Leverage relates to the level of fixed versus variable costs in a businesss
cost structure. The higher the level of fixed costs the greater the operating leverage
and vice versa.

Break-Even point is a point where a business has no net income or no net loss. It is a
point where the profit is zero.
To get break-even point you take fixed cost divided by contribution margin/unit. This
will give you your break-even point in units. This is helpful for a business to
determine the number of unit that they must sell to break even. CVP and break-even
analysis allows a business to create what if analysis. What if we change the selling
price, what if we could change variable costs, what if we could change fixed costs? A
business can see the impact of these changes under CVP. A business can apply the
CVP analysis to multiple products also. The CVP analysis helps with planning and
decision making.

RE:
Wrap Up
For Cost-
11/18/2012 12:15:53 PM
Volume- Mike Beckta
Profit
Analysis
There are key calculations when using CVP analysis, they are the
contribution margin and the contribution margin ratio. The
contribution margin is the amount of income or profit the business
has gained before subtracting its fixed costs. It is the amount
of money available to cover fixed costs. When it is calculated as a
ratio, it is the percentege of money available to cover fixed costs.
Once fixed costs are covered, the next dollar of sales results in the
 company making a profit.

RE:
Wrap Up
For Cost-
11/17/2012 6:46:59 PM
Volume- Britney Womble
Profit
Analysis
Thanks for posting this wrap up

Define
each cost
and give Leon Kiyonga 11/18/2012 5:12:07 PM
examples
of each.
1. Discretionary fixed costs: - It is the cost that is taken by the management in the

annual meetings to expend in fixed cost areas. For example: - Advertising and

Research.

2. Committed fixed costs: - These are the fixed cost that has to be expended and

cannot be adjusted. For instance: - Facilities Investment, Equipment

3. Mixed Costs: - It is a cost that contains both fixed and variable cost. When the

mixed cost in an organization increases then the component of fixed cost remain the

same and variable cost increases. For instance: - Depreciation.

4. Relevant Range: - It is the range of volume where the fixed cost remains the same

with the production. For example : - if the organization has fixed 1 million for fixed

cost but if it increases the production above certain unit then fixed cost will rise

because of wear and tear of facilities.

Cost-
Volume-
Christy Vaflor 11/18/2012 9:16:10 PM
Profit
Analysis
The first assumption is that costs can be accurately separated into fixed or
variable components. This can be difficult and costly to do. Another
assumption is that the fixed costs remain fixed and the variable costs per unit
do not change with the activity level, but with large changes in activity, this
assumption may not be valid.