CHAPTER 2

Total Cost Method

In this chapter we introduce the fundamental calculation that defines cost-volume-profit analysis from an accounting perspective. Let’s start with a short story.

Three managers at a manufacturing firm, Sharon Elsworth, Dante Jackson, and Larry Meeks, were having lunch together. After a couple of minutes of small talk, Dante said to the others, “Have you noticed that consumer demand is going through the roof for our product? Keep in mind that this is just a single-stage model. What no one is making, however, is a two-stage model. Haven’t you thought about that? I think about this so much I sometimes can’t get to sleep at night. It’s only a matter of time before someone will come out with the two-stager.”

Sharon said, ...

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