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Here is a link to an article by Brian Tracy of Entrepreneur Magazine that describes the value of breakeven analysis and he gives a really good example:
It says,
“It’s important to organize each of your products and services by priority, in terms of their contribution to profitability. The analysis should be done on each of your important products or services. Get started by determining:

  • Your single most profitable product or service.
  • The volume of sales of each product.
  • The total profit per unit of each product sold, after deducting every direct and indirect expense.
  • The total profit contribution to the company of each products”(Tracy, 2004, para.6).

 
All, this helps to show  how sales mix and break even analysis work together. What do you think?
The most important information on a CVP Income Statement is the variable cost information per unit. Including this information is the main difference between a traditional income statement. This can be very tricky, because as you stated you assume costs are linear, but we know that according to the supply and demand curve when quantities rise the demand falls. We have to ensure we are considering more than just a CVP analysis before making a production change.
 
Sarah, how does the cost structure of a company relate to CVP?
 
According to Kimmel et. al, “Cost Structure refers to the relative proportion of fixed versus variable costs that a company incurs. Cost structure can have a significant effect on profitability. For example, computer equipment manufacturer Cisco Systems has substantially reduced its fixed costs by choosing to outsource much of its production. While this makes Cisco less susceptible to economic swings, it has also reduced its ability to experience the incredible profitability that it used to have during economic booms.”
 
All, how else can cost structure affect a company?
Our text gave a great example of cost behavior analysis. As many businesses may expect, some costs change, and others remain the same. For example, for an airline company such as Southwest or United, the longer the flight, the higher the fuel costs. On the other hand, Massachusetts General Hospital’s costs to staff the emergency room on any given night are relatively constant regardless of the number of patients treated (Kimmel, et.al., 2016).  A knowledge of cost behavior will help us planning operations and deciding between alternative courses of action. Besides cost behavior in general, managers should be aware of the effect of costs on profits. Cost behavior is not required for external reporting under U.S. GAAP but the understanding of cost behavior is very important for management’s efforts to plan and control its organization’s costs (Averkamp, 2016). 

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