Address Each Part Of The Following Items In Complete Sentenc

Address Each Part Of The Following Items In Complete Sentences Will P

Address each part of the following items in complete sentences. Will pay $30 must be original work and A+ work. I can copy and paste from the internet myself. 1. Name three cost behaviors and their characteristics. 2. Classify each of the following costs as a variable or fixed cost if units produced is the activity base? a. Direct material costs b. Direct labor costs c. Electricity costs of $0.35 per kilowatt-hour 3. What is the purpose of the high-low method? 4. What is the break-even point and why are managers interested in their company’s break-even point? 5. What effect will an increase in unit variable cost or total fixed costs have on the break-even point? What effect will an increase in the unit sales price have on the break-even point? Please explain.

Paper For Above instruction

The analysis of cost behaviors and managerial decision-making relies heavily on understanding how costs react to changes in activity levels. The three primary types of cost behaviors are fixed costs, variable costs, and mixed costs, each characterized by distinct patterns relative to activity levels. Fixed costs remain constant across a range of activity levels, regardless of the volume produced or sold. They include expenses such as rent and salaries that do not fluctuate with production volume. Variable costs, on the other hand, change proportionally with activity; examples include direct materials and direct labor costs, which increase as more units are produced. Mixed costs contain both fixed and variable components, such as utility costs that have a base charge plus a variable charge depending on usage.

Classifying costs as variable or fixed, especially when units produced is the activity basis, involves examining whether costs fluctuate with production volume. For instance, direct material costs are typically variable because they increase in direct proportion to units produced. Similarly, direct labor costs are usually variable, as labor hours correlate with production levels. Electricity costs, when charged at a rate of $0.35 per kilowatt-hour, are classified as variable because the total electricity expense varies directly with electricity usage, which in turn depends on the level of units produced or operated. Understanding these classifications helps managers in budgeting, cost control, and decision-making processes.

The high-low method is a simple technique used to estimate variable and fixed components of a mixed cost based on observed data at two activity levels. Its purpose is to determine the variable cost per unit and the total fixed costs by using the highest and lowest activity points. This method aids managers in isolating fixed costs from variable costs, thereby facilitating more accurate cost behavior analysis, budgeting, and forecasting. By focusing solely on these two points, the high-low method provides a quick approximation but may overlook fluctuations within the range.

The break-even point is the level of sales volume at which total revenues equal total costs, resulting in neither profit nor loss. It is a critical metric for managers because it signifies the minimum operational threshold necessary to cover all expenses. Knowing the break-even point helps managers set sales targets, determine pricing strategies, and evaluate the financial viability of products or services. It also assists in assessing how changes in costs or prices can impact profitability.

When there is an increase in the unit variable cost, the contribution margin per unit decreases, which causes the break-even point to rise. This means that a higher sales volume is required to cover the fixed costs. Similarly, an increase in total fixed costs raises the break-even point because more revenue is needed to offset higher fixed expenses. Conversely, an increase in the unit sales price increases the contribution margin per unit, thereby decreasing the break-even point; fewer units need to be sold to become profitable. Understanding these effects allows managers to evaluate the impact of cost and price changes on profitability and operational risk.

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