Module 2 – Case COST BEHAVIOR AND COST-VOLUME-PROFIT ANALYSIS Assignment Overview Review the three components in the background material to answer the questions and make computations relating to cost behavior and break-even analysis. Case Assignment Part 1 Ten Short-Answer Questions 1. Differentiate between variable and fixed costs. Describe the two major behavior patterns. What if a cost has characteristics of both patterns? 2. What is meant by the term break-even point? What is a potential benefit of calculating break-even? 3. Why is the concept of relevant range crucial for understanding fixed-cost behavior? 4. What is the formula for calculating the break-even point in sales revenue? 5. What formula is used to solve for the break-even point in units? 6. How can the break-even formula be altered to calculate the number of units that must be sold to achieve a desired level of income (target income)? Show the formula and explain. 7. What effect would you expect the mechanization and automation of production processes to have on the break-even point? 8. Why might a business wish to lower its break-even point? How would it go about lowering the break-even point? 9. Describe three ideas that can lower the break-even point and include a simple example with numbers. Part II Real-World Example Review the background material and do some research to find a real-world example where cost-volume-profit analysis was applied or could be applied. Information can be found in the news, research papers, and on investment sites. Another option is to locate the financial statements for a company, make some assumptions, and prepare your own break-even analysis from an external point of view. Describe the situation and the results. Show computations when appropriate. Assignment Expectations Part I Write 3–5 sentences for each question. Part II Write an essay (300–500 words). Show sources when appropriate and APA format is suggested, but not required.
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