Reference no: EM133379098

Introduction

How do business leaders make a decision as to whether to begin a new project or launch a new product? In this unit we will explore the foundational concepts that support cost-volume-profit models: Identifying/measuring fixed and variable costs, and understanding break-even analysis.

Rreview this chapter's "Objectives" and "Key Terms" before and after reading. After you complete the reading, be sure to take this chapter's "Fill in the Blanks" and "Multiple Choice" Self-Quizzes.

Chapter 18 will discuss variable and fixed costs. The chapter then demonstrates a number of ways to measure and project variable costs. By introducing break-even analysis, the chapter concludes by illustrating the cost-volume-profit models that managers and leaders use to make business decisions.

Discussion Assignment

The following are different categories of costs: Variable, Fixed (committed), Fixed (discretionary), and Mixed.

Identify what type of cost is best represented by the following examples of costs and briefly explain why.

The answer to the first one, Rent, is provided as an example: Rent is a fixed, committed cost because it does not change due to differences in activity levels. In other words, rent is always a cost that will be due regardless of business activity level. It is generally considered a committed cost because once you sign the lease you are committed to pay rent for the life of the lease.

Rent: Answer explained above

Property taxes on land and building

Billboard advertising campaign

Raw materials used in the manufacturing process

Employee picnic with band, food, and door prizes