COST ACCOUNTING
COST BEHAVIORS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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revenues are linear
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costs are unchanged
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variable costs are nonlinear
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fixed costs are nonlinear
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Detailed explanation-1: -Answer and Explanation: Cost-Volume-Profit analysis does not assume that variable cost remains the same over the relevant range but it assumes that variable cost do not have a relevant range and it remains the same regardless of how many units of output is made.
Detailed explanation-2: -The assumptions underlying CVP analysis are: The behavior of both costs and revenues is linear throughout the relevant range of activity. (This assumption precludes the concept of volume discounts on either purchased materials or sales.) Costs can be classified accurately as either fixed or variable.
Detailed explanation-3: -In CVP, cost linearity is preserved over the relevant range, and revenues are constant per unit. A business has a constant product mix and produces only one kind of product.
Detailed explanation-4: -Explanation: Breakeven analysis assumes that all variable costs and revenues are constant on a per-unit basis and are linear over a relevant range. Fixed costs in total are constant.