42 Introduction to Cost-Volume-Profit and Cost Structures

What you’ll learn to do: Identify cost-volume-profit considerations for choosing a cost structure

Cost structure refers to the proportion of fixed and variable costs within an organization. Managers may have some control over the proportion based on responsibilities. An example might be an investment in automated equipment that saves variable labor costs. This shifts the cost from a variable cost (labor for production) to a fixed cost (purchase and depreciation of equipment).

In this unit, we will discuss how various costs structures may affect contribution margin and net income of companies based on various factors.