7. How should mixed costs be classified in CVP analysis? What approach is used to effect the appropriate classification? The customary approach to mixed costs in CVP analysis is on an aggregate basis at the end of a certain amount of time. Most companies use what is called the high-low method uses the total costs that incurred at the high usage as well as the low usage. The formula for the high-low method is: changes in total costs divided by high minus low activity level which will equal a variable cost per unit.
9. “Cost-volume-profit (CVP) analysis is based entirely on unit costs.” Do you agree? Explain. I agree that the cost-volume-profit (CVP) is based entirely on unit costs. Everything runs on how much it costs to buy one item at a time. For an example, going to the grocery store to buy an applesauce at$1.29 for a twelve ounce jar. Next to the twelve ounce jar there is a 12 pack of applesauce with the same size jars for $10.59. Is it going to be cheaper to only buy one jar of applesauce or would it be cheaper in the long run to buy the twelve packs; do the math $10.59/12=$0.
14. Linda Fearn asks your help in constructing a CVP graph. Explain to Linda (a) how the break-even point is plotted, and (b) how the level of activity and dollar sales at the break-even point are determined. The break-even point is plotted when the total cost line and the sales line meets and/or crosses each other on a graph. The level of activity and dollar sales at the break-even point are determined when there is nothing left to sell on the selves or racks.
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