Week_5_ Discussion

Lee:

Hi Class,

              The three elements of CVP are variable cost, fixed cost, and mixed cost. Variable Cost are the costs that “remains the same per unit at every level of activity.” (Kimmel, 2019) This type of costs matches in total any level of activity whether increase or decrease. As stated in our text, some examples of variable costs include direct materials and direct labor for a manufacturer; cost of goods sold, sales commissions, etc. Fixed costs are coasts that remain constant and never change no matter the activity level. Rent, insurance, property taxes are just some examples of a fixed cost. Lastly, a mixed cost is cost that contains a variable and a fixed cost element. “Change in total but not proportionately with changes in the activity level.” (Kimmel, 2019) An example of a mixed cost is the rental agreement for a truck including insurance per day plus a charge per mile of use. The insurance charge is a fixed cost while the charge per mile is a variable cost. To understand in simple terms, the fixed cost is a stagnant, a variable cost can change, and a mixed cost is a ‘mix’ of both types of costs. A manager can use these elements to identify an organizations sales volume, prices and how they affect the profits. This allows managers to better understand their reports and make better decisions.

 

Kimmel, P. W. (2019). Accounting: Tools for Business Decision Making (Sixth ed.). [University of Phoenix]. Retrieved from https://phoenix.vitalsource.com/#/books/9781119244929/

Preston:

CVP stands for Cost-Volume-Profit. Cost meaning the expenses, Volume meaning the number of units produce and Profit meaning the difference between the selling price and the cost to provide it. There are three elements of CVP: Variable Cost, Mixed Cost & Fixed Cost. Variable Cost are cost that vary in total directly and proportionately with changes in the activity level. Fixed Cost are cost that remain the same in total regardless of changes in the activity level. Mixed Cost are cost that contain both a variable and a fixed cost element

CVP is used by managers to figure out how the appropriate changes in cost in volume will affect their expenses. CVP is used to make informed decision about the products and or services. According to the text CVP plays an important role in accounting.

References:

Kimmel, P. D.,, J. J., & Kieso, D. E. (2016). Accounting Tools for Business Decision Making (6th ed.). Retrieved from The University of Phoenix eBook Collection database.

Accountingtools.com (2018). The components of cost volume profit analysis. Retrieved from