Financial and Managerial Accounting

Chapter 20 Cost-Volume-Profit Analysis: Additional Issues

Learning Objectives

After studying this chapter, you should be able to:

1. Describe the essential features of a cost-volume-profit income statement.
2. Apply basic CVP concepts.
3. Explain the term sales mix and its effects on break-even sales.
4. Determine sales mix when a company has limited resources.
5. Understand how operating leverage affects profitability.

Feature Story

Rapid Replay

Intel doesn't do things half-way. If you own a PC, then there is a roughly 85% chance that the microprocessor chip that runs your machine was made by Intel. In fact, for as long as most people can remember, Intel has had at least an 85% share of the market for PC computer chips. That doesn't mean, however, that life is easy for Intel. Its earnings swings, like everything else about the company, are major league. Consider these two Wall Street Journal headlines: “Intel's Net Plunges as Demand Dries Up” and then, only slightly more than a year later, “Intel Earnings Set High Bar.”

If Intel is so dominant in the computer chip market, why does it experience such huge swings in its earnings? First, to produce computer chips, Intel must continually make huge ...