CHAPTER 7

Cost–Volume–Profit Relationships

This chapter examines how a company’s cost structure impacts its profitability as various activities that drive cost change in volume. The process by which these relationships are examined is referred to as cost–volume–profit analysis, or CVP analysis.

The term cost structure pertains to how a company’s total costs are divided between costs that are fixed (those that do not change significantly as business activities change), and costs that are variable (those that do change measurably as business activities change). CVP analysis focuses upon business activities that are highly correlated with driving up a company’s costs and identifies these activities as cost drivers. Throughout this chapter, units ...

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