1. Describe the primary types of cost behaviors. Costs can be classified as variable, fixed, or mixed. Variable costs change in direct proportion to some level of activity, such as sales. Fixed costs remain constant across different levels of activity. Mixed costs have some base level of fixed costs and some incremental variable portion as activity exceeds a certain level.
   
   
2. Define the relevant range and a firm's total cost function. Relevant range describes the levels of activity or sales volume where assumptions about the fixed or variable nature of costs hold. A firm's total cost function is an equation that expresses total cost as the sum of total fixed costs and total variable costs. Mixed costs are disaggregated into fixed and variable components for this formula.
   
   
3. Describe cost-volume-profit (CVP) analysis and explain its usefulness. CVP analysis is a fundamental tool that managers use to analyze the relationships between revenues, expenses, and profits at different levels of sales. As part of this analysis, a contribution margin income statement frequently is used to highlight the differences between variable and fixed expenses. Total contribution margin is the excess of sales revenues over variable costs and represents the amount available to cover fixed expenses.
   
   
4. Demonstrate the use of breakeven analysis. Breakeven analysis allows managers to clearly determine the level of sales that a firm needs to earn a profit. This tool allows managers to quickly see how changing sales prices or costs can affect profitability.
   
   
5. Identify strategies that companies use to lower their breakeven points. Companies seeking to lower their breakeven point may choose to do so in one of several ways. They can either decrease fixed or variable costs or they can increase sales price. Since both of these approaches potentially can affect business processes and ultimately customer satisfaction, managers must carefully evaluate their impact prior to implementation.