Categorize Costs as Fixed, Variable and Semi-Variable for a Given Assignment

Categorize Costs as Fixed, Variable and Semi-Variable for a Given Scenario - Assignment Example Contribution per product/customer will calculate how much contribution a certain product would earn for every unit of sales generated, which is expressed as a percentage or decimal. If the C/S ratio is 0.4, for every  £1 of sales revenue, 40 pence will be a contribution. Cost-Volume-Profit analysis looks at changes in profits as variable costs, fixed costs, sales price and quantity change. It is also called â€Å"what if?† analysis and it particularly looks at sales less variable costs. It is also called a contribution. With the contribution, management can easily understand the level of sales that they are likely to start making profits or cover all costs. For one to have a successful business there must be a clear understanding of the financial impact that basic financial decisions may pose (Dohr, Howell 1946, p15). One is ought to know his or her most profitable services or products, what will happen if sales volumes will suddenly drop, the impact of lowering sales prices or taking a loan, etc. To answer these questions, Cost/Volume/Profit (CVP) analysis becomes the answer (Atkinson 1997, p51). Cost/Volume/Profit analysis examines the relationships between variable costs and fixed costs, profits and sales volumes. The contribution margin analysis will help an entrepreneur in comparing the profitability of different products, services or even a line that he or she is offering. Breakeven analysis will help a businessperson to tell the sales volumes that he or she will need to breakeven under different cost scenarios and prices (Upchurch, 2002, 72). Operative leverage, on the other hand, will examine the degree at which the business is using fixed costs, this will in turn magnify the returns when there is an upturn in sales and will also magnify losses as sales will be  dropping.