Question

Explain the how CVP analysis might be used in your workplace or in a different environment you are familiar with. Why is understanding the mix between fixed costs and variable costs important? How can understanding break-even point change decision making specifically in your example? Why would a non-accountant need to have a good understanding of this type of analysis and terms?

This question will help the students to understand why they need to study accounting. Question responses should be a minimum of 250 words, with a goal of 500 words with at least 1 outside, academic strength source. A response to at least two of your classmates is required.

Answer 1

Solution:-

1. Explain the how CVP analysis might be used in your workplace or in a different environment you are familiar with:-

Based on personal experience by working in health promotion clinics the CVP analysis took place in our group when activities to collect funds were realized in order to provide the communities involved the proper health care services. If we organized a bake sale, the sole purpose of that activity was based on how the profits that we were to obtain varied with the prices established, the costs, and the volume of products sold. This move resulted beneficial to the clinic in numerous occasions, and with each time that such sales would take place these changes on the profit were observed if some of those three elements changed or varied.

2. Why is understanding the mix between fixed costs and variable costs important:-

A cost that has the characteristics of both variable and fixed cost is called mixed or semi-variable cost. For example, the rental charges of a machine might include $500 per month plus $5 per hour of use. The $500 per month is a fixed cost and $5 per hour is a variable cost. Another example of mixed or semi-variable cost is electricity bill. The electricity bill can be divided into two parts – (1) line rent and (2) cost of units consumed. The line rent is not affected by the consumption of electricity whereas the cost of units consumed varies with the change in units consumed.

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