Usefulness of Cost Accounting
Cost–volume–profit analysis: A form of cost accounting analysis that many businesses use to assess financial situations.
Expenses or costs are classified as either variable or fixed in a CVP context. Unlike fixed expenses, variable expenses vary with volume of output. A CVP income statement lists variable expenses after sales.
For example, packing supplies and delivery charges are considered variable costs for a manufacturing company because these expenses vary with the volume of output. When output decreases, these expenses decrease. When output increases, these expenses increase.
Some companies or circumstances may classify certain items as variable, whereas other companies or circumstances may classify the same items as fixed. For example, electricity expense is variable when used to manufacture a certain item. However, electricity expense is fixed when used to light offices and warehouses regardless of the amount of output.
