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Chapter 4

Cost-Volume-Profit Analysis

Learning Objectives

  1. Identify common cost behavior patterns.
  2. Estimate the relation between cost and activity using account analysis and the high-low method.
  3. Perform cost-volume-profit analysis for single products.
  4. Perform cost-volume-profit analysis for multiple products.
  5. Discuss the effect of operating leverage.
  6. Use the contribution margin per unit of the constraint to analyze situations involving a resource constraint.

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Mary Stuart is the vice president of operations for Code Connect, a company that manufactures and sells bar code readers.

As a senior manager, she must answer a variety of questions dealing with planning, control, and decision making. Consider the following questions that Mary has faced:

Planning. Last year, CodeConnect sold 20,000 bar code readers at $200 per unit. The cost of manufacturing these items was $2,940,000, and selling and administrative costs were $800,000. Total profit was $260,000. In the coming year, the company expects to sell 25,000 units. What level of profit should be in the budget for the coming year?

Control. In April, production costs were $250,000. In May, costs increased to $265,000, but production also increased from 1,750 units in April to 2,000 units in May. Did the manager responsible for ...

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