Question

describing and explaining cost behavior, cost volume profit analysis, variable costing for management analysis and how they impact a business environment performance

Answer 1

Cost Behavior:

Cost can be three types: variable, fixed and semi-variable. Variable costs vary directly in proportion to level of output . Fixed costs remain constant irrespective of the level of output. Semi-variable costs are a mixture of variable and fixed costs.

Cost Volume Profit Analysis:

It is an analysis done to determine how changes in the level of output affect the costs and the profits of the company. There are a number of assumptions made while performing this analysis.For example: Sales Price per unit is constant. It is used to make short term decisions.

Variable costing for management analysis:

Under variable costing, the cost of goods manufactured included only variable manufacturing costs. Variable costing is often called direct costing. It is very useful in decision making.

Impact on business environment performance:

Management uses CVP analysis to understand the optimum level of sales. It is also used for pricing decisions and controlling costs. Costs are classified according to their behavior and the nature of the costs impact greatly how a business performs. The more variable the cost, the safer it is to the run the business.