Jaguar Annual Report

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CHAPTER 5 Cost-Volume-Profit ASSIGNMENT CLASSIFICATION TABLE Study Objectives 1. 2. 3. 4. 5. Distinguish between variable and fixed costs. Explain the significance of the relevant range. Explain the concept of mixed costs. List the five components of cost-volume-profit analysis. Indicate what contribution margin is and how it can be expressed. Identify the three ways to determine the break-even point. Give the formulas for determining sales required to earn target net income. Define margin of safety, and give the formulas for computing it. Questions 1, 2, 3, 6 4, 5 6, 7, 8 9 10, 11, 17 5, 6 Brief Exercises 1 2 1, 3, 4 Exercises 1, 2, 3, 4, 5 1 2, 3, 4, 5, 6 7 6, 7, 8, 9, 10, 13 6, 7, 8, 9, 10, 11, 12 11, 13 1A, 2A, 3A, 1B, 2B, 3B, 4A,…show more content…
(a) The activity index identifies the activity that causes changes in the behavior of costs. Once the index is determined, it is possible to classify the behavior of costs in response to changes in activity levels into three categories: variable, fixed, or mixed. (b) Variable costs may be defined in total or on a per-unit basis. Variable costs in total vary directly and proportionately with changes in the activity level. Variable costs per unit remain the same at every level of activity. Fixed costs remain the same in total regardless of changes in the activity level. In contrast, fixed costs per unit vary inversely with activity. As volume increases, fixed costs per unit decline and vice versa. (a) The relevant range is the range of activity over which a company expects to operate during the year. (b) Disagree. The behavior of both fixed and variable costs are linear only over a certain range of activity. CVP analysis is based on the assumption that both fixed and variable costs remain linear within the relevant range. This is true. Most companies operate within the relevant range. Within this range, it is possible to establish a linear (straight-line) relationship for both variable and fixed costs. If a relevant range cannot be established, segregation of costs into fixed and variable becomes extremely difficult. Apartment rent is
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