Electronic Presentation by Douglas Cloud Pepperdine University

1
Survey of Accounting
Electronic Presentation by Douglas Cloud
Pepperdine University
Carl S.Warren
2
Task Force Clip Art included in this electronic
presentation is used with the permission of New
Vision Technology of Nepean Ontario, Canada.
3
Chapter 11
Cost Behavior and Cost-Volume-Profit Analysis
4
Learning Objectives
1. Classify costs according to their behavior as
variable costs, fixed costs, or mixed
costs. 2. Compute the contribution margin, the
contribution margin ratio, and the unit
contribution margin, and explain how they can be
useful to managers.
After studying this chapter, you should be able
to
Continued
5
Learning Objectives
3. Using the unit contribution margin, determine
the break-even point and the volume necessary to
achieve a target profit. 4. Using a
cost-volume-profit chart and a profit-volume
chart, determine the break-even point and the
volume necessary to achieve a target profit.
Continued
6
Learning Objectives
5. Calculate the break-even point for a business
selling more than one product. 6. Compute the
margin of safety and the operating leverage, and
explain how managers use these concepts. 7. List
the assumptions underlying cost-volume-profit
analysis.
7
Learning Objective
1
Classify costs according to their behavior as
variable costs, fixed costs, or mixed costs.
8
Variable Costs
Total Variable Cost Graph
Unit Variable Cost Graph
300,000 250,000 200,000 150,000 100,000
50,000
20 15 10 5
Cost per Unit
Total Costs
0
10 20 30
Units Produced (000)
0
10 20 30
Units Produced (000)
Units Total Cost Produced
Cost per Unit
5,000 50,000 10 10,000
100,000 10 15,000 150,000 10
20,000 200,000 10 25,000
250,000 10 30,000 300,000 10
9
Variable Costs
Total Variable Cost Graph
Unit Variable Cost Graph
300,000 250,000 200,000 150,000 100,000
50,000
20 15 10 5
Cost per Unit
Total Costs
0
10 20 30
Units Produced (000)
0
10 20 30
Units Produced (000)
Units Total Cost Produced
Cost per Unit
5,000 50,000 10 10,000
100,000 10 15,000 150,000 10
20,000 200,000 10 25,000
250,000 10 30,000 300,000 10
10
Variable Costs
Total Variable Cost Graph
Unit Variable Cost Graph
300,000 250,000 200,000 150,000 100,000
50,000
20 15 10 5
Cost per Unit
Total Costs
0
10 20 30
Units Produced (000)
0
10 20 30
Units Produced (000)
Units Total Cost Produced
Cost per Unit
5,000 50,000 10 10,000
100,000 10 15,000 150,000 10
20,000 200,000 10 25,000
250,000 10 30,000 300,000 10
11
Fixed Costs
Total Fixed Cost Graph
Unit Fixed Cost Graph
150,000 125,000 100,000 75,000 50,000
25,000
1.50 1.25 1.00 .75 .50 .25
Total Costs
Cost per Unit
0
0
100 200 300
100 200 300
Units Produced (000)
Units Produced (000)
Units Total Cost Produced
Cost per Unit
50,000 75,000 1.500 100,000
75,000 .750 150,000 75,000
.500 200,000 75,000 .375 250,000
75,000 .300 300,000 75,000
.250
12
Fixed Costs
Total Fixed Cost Graph
Unit Fixed Cost Graph
150,000 125,000 100,000 75,000 50,000
25,000
1.50 1.25 1.00 .75 .50 .25
Total Costs
Cost per Unit
0
0
100 200 300
100 200 300
Units Produced (000)
Units Produced (000)
Units Total Cost Produced
Cost per Unit
50,000 75,000 1.500 100,000
75,000 .750 150,000 75,000
.500 200,000 75,000 .375 250,000
75,000 .300 300,000 75,000
.250
13
Fixed Costs
Total Fixed Cost Graph
Unit Fixed Cost Graph
150,000 125,000 100,000 75,000 50,000
25,000
1.50 1.25 1.00 .75 .50 .25
Total Costs
Cost per Unit
0
0
100 200 300
100 200 300
Units Produced (000)
Units Produced (000)
Units Total Cost Produced
Cost per Unit
50,000 75,000 1.500 100,000
75,000 .750 150,000 75,000
.500 200,000 75,000 .375 250,000
75,000 .300 300,000 75,000
.250
14
Mixed Costs
Total Mixed Cost Graph
40,000 35,000 30,000 25,000 20,000 15,000 1
0,000 5,000
Mixed costs are sometimes called semivariable or
semifixed costs.
Total Costs
Mixed costs are usually separated into their
fixed and variable components for management
analysis.
0
10 20 30 40
Total Machine Hours (000)
15
Mixed Costs High-Low Method
Actual costs incurred
Highest and lowest levels
Production Total Units Cost
Production Total Units Cost
June 1,000 45,550 July 1,500 52,000 August 2,100
61,500 September 1,800 57,500 October 750 41,250
Highest level Lowest level Difference
16
Mixed Costs High-Low Method
Actual costs incurred
Highest and lowest levels
Production Total Units Cost
Production Total Units Cost
June 1,000 45,550 July 1,500 52,000 August 2,100
61,500 September 1,800 57,500 October 750 41,250
Highest level 2,100 61,500 Lowest level
Difference
17
Mixed Costs High-Low Method
Actual costs incurred
Highest and lowest levels
Production Total Units Cost
Production Total Units Cost
June 1,000 45,550 July 1,500 52,000 August 2,100
61,500 September 1,800 57,500 October 750 41,250
Highest level 2,100 61,500 Lowest
level 750 41,250 Difference
18
Mixed Costs High-Low Method
Actual costs incurred
Highest and lowest levels
Production Total Units Cost
Production Total Units Cost
June 1,000 45,550 July 1,500 52,000 August 2,100
61,500 September 1,800 57,500 October 750 41,250
Highest level 2,100 61,500 Lowest
level 750 41,250 Difference 1,350 20,250
Difference in total cost Difference in production
Variable cost per unit
1

19
Mixed Costs High-Low Method
Actual costs incurred
Highest and lowest levels
Production Total Units Cost
Production Total Units Cost
June 1,000 45,550 July 1,500 52,000 August 2,100
61,500 September 1,800 57,500 October 750 41,250
Highest level 2,100 61,500 Lowest
level 750 41,250 Difference 1,350 20,250
Difference in total cost Difference in production
20,250 1,350 units
Variable cost per unit
1



15
20
Mixed Costs High-Low Method
Actual costs incurred
Highest and lowest levels
Production Total Units Cost
Production Total Units Cost
June 1,000 45,550 July 1,500 52,000 August 2,100
61,500 September 1,800 57,500 October 750 41,250
Highest level 2,100 61,500 Lowest
level 750 41,250 Difference 1,350 20,250
Difference in total cost Difference in production
20,250 1,350 units
Variable cost per unit
1



15
Total cost
Fixed cost
Variable cost per unit
Units of production
2


x
21
Mixed Costs High-Low Method
Actual costs incurred
Highest and lowest levels
Production Total Units Cost
Production Total Units Cost
June 1,000 45,550 July 1,500 52,000 August 2,100
61,500 September 1,800 57,500 October 750 41,250
Highest level 2,100 61,500 Lowest
level 750 41,250 Difference 1,350 20,250
Difference in total cost Difference in production
20,250 1,350 units
Variable cost per unit
1



15
Total cost
Fixed cost
Variable cost per unit
Units of production
2


x



Highest level
61,500
( 15 x 2,100 )
30,000
22
Mixed Costs High-Low Method
Actual costs incurred
Highest and lowest levels
Production Total Units Cost
Production Total Units Cost
June 1,000 45,550 July 1,500 52,000 August 2,100
61,500 September 1,800 57,500 October 750 41,250
Highest level 2,100 61,500 Lowest
level 750 41,250 Difference 1,350 20,250
Difference in total cost Difference in production
20,250 1,350 units
Variable cost per unit
1



15
Total cost
Fixed cost
Variable cost per unit
Units of production
2


x



Highest level
61,500
( 15 x 2,100 )
30,000



Lowest level
41,250
( 15 x 750 )
30,000
23
Mixed Costs High-Low Method
Actual costs incurred
Highest and lowest levels
Production Total Units Cost
Production Total Units Cost
June 1,000 45,550 July 1,500 52,000 August 2,100
61,500 September 1,800 57,500 October 750 41,250
Highest level 2,100 61,500 Lowest
level 750 41,250 Difference 1,350 20,250
Difference in total cost Difference in production
20,250 1,350 units
Variable cost per unit
1



15
Total cost
Fixed cost
Variable cost per unit
Units of production
2


x



Highest level
61,500
( 15 x 2,100 )
30,000



Lowest level
41,250
( 15 x 750 )
30,000
24
Variable Costs
Fixed Costs
Total Variable Costs
Total Fixed Costs
Total Costs
Total Costs
Total Units Produced
Total Units Produced
Unit Fixed Costs
Unit Variable Costs
Per Unit Cost
Per Unit Cost
Total Units Produced
Total Units Produced
25
Variable Costs
Fixed Costs
Total Variable Costs
Total Fixed Costs
Used for planning. Remains the same regardless of
activity level.
Total Costs
Total Costs
75,000 total
Total Units Produced
Total Units Produced
Unit Fixed Costs
Unit Variable Costs
Per Unit Cost
Per Unit Cost
10 per unit
Total Units Produced
Total Units Produced
26
Learning Objective
2
Compute the contribution margin, the contribution
margin ratio, and the unit contribution margin,
and explain how they can be useful to managers.
27
Contribution Margin Income Statement
The contribution margin is available to cover the
fixed costs and income from operations.
Total
Sales (50,000 units) 1,000,000 Variable
costs 600,000 Contribution margin
400,000 Fixed costs 300,000 Income
from operations 100,000
Variable costs
Sales
Fixed costs
Income from operations
28
Contribution Margin Income Statement
Total Per Unit Percent
Sales (50,000 units) 1,000,000 20
100 Variable costs 600,000 12
60 Contribution margin 400,000 8
40 Fixed costs 300,000 Income from
operations 100,000
The statement can be extended to include per unit
dollars and percentage numbers.
29
Contribution Margin Income Statement
Total Per Unit Percent
Sales (50,000 units) 1,000,000 20
100 Variable costs 600,000 12
60 Contribution margin 400,000 8
40 Fixed costs 300,000 Income from
operations 100,000
Income from operations
Variable costs
Fixed costs
Sales



Variable costs
Contribution margin
Sales


30
Contribution Margin Income Statement
Total Per Unit Percent
Sales (50,000 units) 1,000,000 20
100 Variable costs 600,000 12
60 Contribution margin 400,000
8 40 Fixed costs 300,000 Income
from operations 100,000
Unit Contribution Margin
Contribution Margin Ratio
The contribution margin can be expressed three
ways 1. Total contribution margin in dollars. 2.
Unit contribution margin (dollars per unit). 3.
Contribution margin ratio (percentage).
31
Learning Objective
3
Using the unit contribution margin, determine the
break-even point and the volume necessary to
achieve a target profit.
32
Calculating the Break-Even Point
Total Per Unit Percent
Sales (50,000 units) ? 20
100 Variable costs ? 12
60 Contribution margin 300,000 8
40 Fixed costs
300,000 Income from operations 0
At the break-even point, fixed costs and the
contribution margin are equal.
33
Calculating the Break-Even Point
Total Per Unit Percent
Sales (50,000 units) ? 20
100 Variable costs ? 12
60 Contribution margin 300,000 8
40 Fixed costs
300,000 Income from operations 0
/
or
Divide by either 8 per unit or 40
Break-even sales
Fixed costs
Contribution margin

/
34
Calculating the Break-Even Point
Total Per Unit Percent
Sales (50,000 units) ? 20
100 Variable costs ? 12
60 Contribution margin 300,000 8
40 Fixed costs 300,000 Income from
operations 0
?
or
Break-even sales
Fixed costs
Contribution margin

/
What is the break-even sales in units?
35
Calculating the Break-Even Point
Total Per Unit Percent
Sales (50,000 units) ? 20
100 Variable costs ? 12
60 Contribution margin 300,000 8
40 Fixed costs 300,000 Income from
operations 0
/
or
Break-even sales
Fixed costs
Contribution margin

/
Break-even sales 300,000 / 8 37,500 units
What is the break-even sales in dollars?
36
Calculating the Break-Even Point
Total Per Unit Percent
Sales (50,000 units) ?
20 100 Variable costs ?
12 60 Contribution margin
300,000 8 40 Fixed costs
300,000 Income from operations
0
/
or
Break-even sales
Fixed costs
Contribution margin

/
Break-even sales 300,000 / 8 37,500 units
Break-even sales 300,000 / 40 750,000
37
Calculating a Planned Sales Level
Total Per Unit Percent
Sales (50,000 units) ? 20
100 Variable costs ? 12
60 Contribution margin 400,000 8
40 Fixed costs
300,000 Income from operations 100,000
/
or
Fixed Target costs profit
Planned sales
Contribution margin


/
Fixed costs plus the target profit equals the
required total contribution margin.
38
Calculating a Planned Sales Level
Total Per Unit Percent
Sales (50,000 units) ? 20
100 Variable costs ?
12 60 Contribution margin 400,000
8 40 Fixed costs
300,000 Income from operations 100,000
/
or
Fixed Target costs profit
Contribution margin
Planned sales


/
8 per unit or 40
39
Calculating a Planned Sales Level
Total Per Unit Percent
/
or
Planned sales
Fixed Target costs profit
Contribution margin


/
What is the planned sales level in units?
40
Calculating a Planned Sales Level
Total Per Unit Percent
/
or
Planned sales
Fixed Target costs profit
Contribution margin


/
Planned sales (300,000 100,000) / 8
50,000 units
What is the planned sales level in dollars?
41
Calculating a Planned Sales Level
Total Per Unit Percent
Sales (50,000 units) 1,000,000 20
100 Variable costs 600,000 12
60 Contribution margin 400,000
8 40 Fixed costs
300,000 Income from operations 100,000
/
or
Planned sales
Fixed Target costs profit
Contribution margin


/
Planned sales (300,000 100,000) / 8
50,000 units
Planned sales (300,000 100,000) / 40
1,000,000
1,000,000
42
Learning Objective
4
Using a cost-volume-profit chart and a
profit-volume chart, determine the break-even
point and the volume necessary to achieve a
target profit.
43
Cost-Volume-Profit Chart
500 450 400 350 300 250 200 150 100 50
Total Sales
Sales and Costs (000)
0
1 2 3 4 5 6 7 8 9 10
Units of Sales (000)
Unit selling price 50 Unit variable
cost 30 Unit contribution margin 20 Total
fixed costs 100,000
44
Cost-Volume-Profit Chart
500 450 400 350 300 250 200 150 100 50
Total Sales
Sales and Costs (000)
Variable Costs
60
0
1 2 3 4 5 6 7 8 9 10
Units of Sales (000)
Unit selling price 50 Unit variable
cost 30 Unit contribution margin 20 Total
fixed costs 100,000
45
Cost-Volume-Profit Chart
500 450 400 350 300 250 200 150 100 50
Total Sales
Contribution Margin
40
Sales and Costs (000)
Variable Costs
60
0
1 2 3 4 5 6 7 8 9 10
Units of Sales (000)
100 60 40
Unit selling price 50 Unit variable
cost 30 Unit contribution margin 20 Total
fixed costs 100,000
46
Cost-Volume-Profit Chart
500 450 400 350 300 250 200 150 100 50
Total Sales
Total Costs
Sales and Costs (000)
Fixed Costs
Variable Costs
0
1 2 3 4 5 6 7 8 9 10
Units of Sales (000)
Unit selling price 50 Unit variable
cost 30 Unit contribution margin 20 Total
fixed costs 100,000
47
Cost-Volume-Profit Chart
500 450 400 350 300 250 200 150 100 50
Total Sales
Total Costs
Sales and Costs (000)
0
1 2 3 4 5 6 7 8 9 10
Units of Sales (000)
Unit selling price 50 Unit variable
cost 30 Unit contribution margin 20 Total
fixed costs 100,000
48
Cost-Volume-Profit Chart
500 450 400 350 300 250 200 150 100 50
Total Sales
Operating Profit Area
Total Costs
Sales and Costs (000)
Operating Loss Area
0
1 2 3 4 5 6 7 8 9 10
Units of Sales (000)
Unit selling price 50 Unit variable
cost 30 Unit contribution margin 20 Total
fixed costs 100,000
49
Cost-Volume-Profit Chart
500 450 400 350 300 250 200 150 100 50
Total Sales
Total Costs
Sales and Costs (000)
Break-Even Point
0
1 2 3 4 5 6 7 8 9 10
Units of Sales (000)
Unit selling price 50 Unit variable
cost 30 Unit contribution margin 20 Total
fixed costs 100,000
50
Cost-Volume-Profit Chart
500 450 400 350 300 250 200 150 100 50
Total Sales
Total Costs
Sales and Costs (000)
Break-Even Point
0
1 2 3 4 5 6 7 8 9 10
Units of Sales (000)
Unit selling price 50 Unit variable
cost 30 Unit contribution margin 20 Total
fixed costs 100,000
100,000 20
5,000 units
51
Cost-Volume-Profit Chart (Break-Even)
500 450 400 350 300 250 200 150 100 50
Total Sales
Operating Profit Area
Total Costs
Sales and Costs (000)
Break-Even Point
Operating Loss Area
0
1 2 3 4 5 6 7 8 9 10
Units of Sales (000)
Unit selling price 50 Unit variable
cost 30 Unit contribution margin 20 Total
fixed costs 100,000
100,000 20
5,000 units
52
Revised Cost-Volume-Profit Chart
500 450 400 350 300 250 200 150 100 50
Total Sales
Operating Profit Area
Total Costs
Sales and Costs (000)
Revised Break-Even Point
Operating Loss Area
0
1 2 3 4 5 6 7 8 9 10
Units of Sales (000)
Unit selling price 50 Unit variable
cost 30 Unit contribution margin 20 Total
fixed costs 80,000
80,000 20
4,000 units
53
Profit-Volume Chart
100 75 50 25 0 (25) (50) (75) (100)
Operating Profit (Loss) 000s
Relevant range is 10,000 units.
1 2 3 4 5 6 7 8 9 10
Units of Sales (000s)
Sales (10,000 units x 50)
500,000 Variable costs (10,000 units x 30)
300,000 Contribution margin (10,000 units x
20) 200,000 Fixed costs
100,000 Operating profit

100,000
54
Profit-Volume Chart
100 75 50 25 0 (25) (50) (75) (100)
Operating Profit (Loss) 000s
Maximum profit within the relevant range.
1 2 3 4 5 6 7 8 9 10
Units of Sales (000s)
Maximum loss is equal to the total fixed costs.
Sales (10,000 units x 50)
500,000 Variable costs (10,000 units x 30)
300,000 Contribution margin (10,000 units x
20) 200,000 Fixed costs
100,000 Operating profit

100,000
55
Profit-Volume Chart
100 75 50 25 0 (25) (50) (75) (100)
Profit Line
Operating Profit
Operating Profit (Loss) 000s
Operating Loss
1 2 3 4 5 6 7 8 9 10
Units of Sales (000s)
Sales (10,000 units x 50)
500,000 Variable costs (10,000 units x 30)
300,000 Contribution margin (10,000 units x
20) 200,000 Fixed costs
100,000 Operating profit
100,000
56
Profit-Volume Chart
100 75 50 25 0 (25) (50) (75) (100)
Profit Line
Operating Profit
Operating Profit (Loss) 000s
Operating Loss
Break-Even Point
1 2 3 4 5 6 7 8 9 10
Units of Sales (000s)
Sales (10,000 units x 50)
500,000 Variable costs (10,000 units x 30)
300,000 Contribution margin (10,000 units x
20) 200,000 Fixed costs
100,000 Operating
profit
100,000
57
Learning Objective
5
Calculate the break-even point for a business
selling more than one product.
58
Sales Mix Considerations
Contribution margin
Products A B
Sales 90 140
Variable costs 70 95
Contribution margin 20 45 Sales mix
80 20
What is the average contribution for each product?
59
Sales Mix Considerations
Contribution margin
Products A B
Sales 90
140 Variable costs 70
95 Contribution margin 20 45 Sales
mix x 80 x 20 Product
contribution 16 9
What is the total product contribution?
60
Sales Mix Considerations
Contribution margin
Products A B
Sales 90
140 Variable costs 70
95 Contribution margin 20 45 Sales
mix x 80 x 20 Product
contribution 16 9 Total product
contribution 25
Break-even sales units
Total fixed costs 200,000 Product
contribution 25
What is the break-even sales units?
61
Sales Mix Considerations
Contribution margin
Products A B
Sales 90
140 Variable costs 70
95 Contribution margin 20 45 Sales mix
x 80 x 20 Product
contribution 16 9 Total product
contribution 25
Break-even sales units
Total fixed costs 200,000 Product
contribution 25 Break-even sales
units 8,000 Product A units (80)
6,400 Product B units (20) 1,600
8,000 units
62
Sales Mix Considerations
Contribution margin
Products A B
Sales 90 140
Variable costs 70 95
Contribution margin 20 45 Sales
mix 60 40
If the sales mix is 60 for product A and 40 for
product B, what is the break-even sales units?
63
Sales Mix Considerations
Contribution margin
Products A B
Sales 90
140 Variable costs 70
95 Contribution margin 20 45 Sales
mix x 60 x 40 Product
contribution 12 18 Total product
contribution 30
Break-even sales units
Total fixed costs 200,000 Product
contribution 30 Break-even sales
units 6,667 Product A units (60)
4,000 Product B units (40) 2,667
6,667 units
64
Learning Objective
6
Compute the margin of safety and the operating
leverage, and explain how managers use these
concepts.
65
Margin of Safety
Sales Sales at break-even point Sales
Dollars Units
Sales
250,000 10,000 Break-even sales
200,000 8,000 Excess
50,000 2,000
66
Margin of Safety
Sales Sales at break-even point Sales
Dollars Units
Sales
250,000 10,000 Break-even sales
200,000 8,000 Excess
50,000 2,000
A
Actual sales level.
67
Margin of Safety
Sales Sales at break-even point Sales
Dollars Units
Sales
250,000 10,000 Break-even sales
200,000 8,000 Excess
50,000 2,000 Margin of safety (B/A)
A
B
Excess of actual sales over the break-even sales.
What is the margin of safety as a percentage?
68
Margin of Safety
Sales Sales at break-even point Sales
Dollars Units
Sales
250,000 10,000 Break-even sales
200,000 8,000 Excess
50,000 2,000 Margin of safety (B/A) 20
A
B
Margin of safety expressed in units.
Margin of safety indicates the decrease in sales
that may occur before an operating loss results.
69
Operating Leverage
Operating leverage is a measure of the relative
mix of variable costs and fixed costs.
Contribution margin Operating income
Jones Inc. Wilson Inc.
Sales 400,000 400,000 Variable
costs 300,000 300,000 Contributio
n margin 100,000 100,000 Fixed
costs 80,000
50,000 Income from operations 20,000 50,000
70
Operating Leverage
Operating leverage is a measure of the relative
mix of variable costs and fixed costs.
Contribution margin Operating income
Jones Inc. Wilson Inc.
Sales 400,000 400,000 Variable
costs 300,000 300,000 Contributio
n margin 100,000 100,000 Fixed
costs 80,000
50,000 Income from operations 20,000 50,000
A
Both companies have the same contribution margin.
71
Operating Leverage
Operating leverage is a measure of the relative
mix of variable costs and fixed costs.
Contribution margin Operating income
Sales 400,000 400,000 Variable
costs 300,000 300,000 Contributio
n margin 100,000 100,000 Fixed
costs 80,000
50,000 Income from operations 20,000
50,000 Operating leverage (A/B)
A
B
What is the operating leverage?
72
Operating Leverage
Operating leverage is a measure of the relative
mix of variable costs and fixed costs.
Contribution margin Operating income
Sales 400,000 400,000 Variable
costs 300,000 300,000 Contributio
n margin 100,000 100,000 Fixed
costs 80,000
50,000 Income from operations 20,000
50,000 Operating leverage (A/B)
A
B
5 2
What do these numbers mean?
73
Operating Leverage
Operating leverage is a measure of the relative
mix of variable costs and fixed costs.
Contribution margin Operating income
Jones Inc. Wilson Inc.
Sales 400,000 400,000 Variable
costs 300,000 300,000 Contributio
n margin 100,000 100,000 Fixed
costs 80,000
50,000 Income from operations 20,000
50,000 Operating leverage (A/B)
A
B
5 2
Capital intensive?
Labor intensive?
74
Learning Objective
7
List the assumptions underlying
cost-volume-profit analysis.
75
Assumptions of Cost-Volume-Profit Analysis
The reliability of cost-volume-profit analysis
depends upon several assumptions.

• 1. Total sales and total costs can be represented
  by straight lines.
• 2. Within the relevant range of operating
  activity, the efficiency of operations does not
  change.
• 3. Costs can be accurately divided into fixed and
  variable components.
• 4. The sales mix is constant.
• 5. There is no change in the inventory quantities
  during the period.

76
Chapter 11
The End
77
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