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Week 4 Learning Team Reflection: Cost-Volume-Profit

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Week 4 Learning Team Reflection
Bassam Abukhodair, Michael Dobs, Dhavanika Patel, Jeffrey Smith
University of Phoenix
ACC/561 - Professor Cathleen Davis
Due: October 21, 2013 Week 4 Learning Team Reflection
Whereas Wiley eloquently states that Cost-Volume-Profit (CVP) is the examination of numbers and values or more specifically the study of the effects of changes in costs and volume on a company's profits, it is at its most basic level so much more; it is essentially the study of relationships. It explores the production of a particular item along with its associated costs and production volumes and evaluates the relationship shared with a company’s ultimate goal; profit. Within this, “study of relationships,” it also examines the effects of change on the relationships between cost, volume and profit. Utilized properly, a CVP analysis can be a company’s greatest tool (Kimmel, Weygandt, & Kieso, 2011)
The Components of CVP
In order for CVP to be accurate, it makes certain assumptions, all of which must remain true and accurate for the CVP analysis also to remain true and accurate. To this end, the costs and resulting revenue must remain linear throughout the life of a product or more specifically, a particular production line. Costs are established as fixed or variable and are affected only by changes in activity. Finally, if a product or product line consists of two or more items, the relationship of all items involved must remain consistent.
A thorough and proper CVP analysis considers the relationships shared among the components involved in production such as volume, level of activity, unit selling price, variable cost per unit, total fixed costs and sales mix. CVP becomes a determining factor for companies when determining a break-even point. If a business needs to understand the sales requirements to profit from a particular product, a CVP

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