COST ACCOUNTING
COST VOLUME PROFIT ANALYSIS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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total fixed costs decrease
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variable costs per unit increase
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variable costs per unit decrease
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total fixed costs increase
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Detailed explanation-1: -The reliability of CVP lies in the assumptions it makes, including that the sales price and the fixed and variable cost per unit are constant. The costs are fixed within a specified production level. All units produced are assumed to be sold, and all fixed costs must be stable.
Detailed explanation-2: -The correct answer is True. Under the CVP (Cost-Volume-Profit) analysis for a firm, the selling price per unit, the variable cost per unit, and the total fixed costs are considered constant for a particular production volume range. Thus, these metrics do not change as the production volume changes.
Detailed explanation-3: -Overall fixed cost will remain constant but fixed costs per unit will decrease as volume increases. Therefore this statement as it is written is not an assumption o CVP analysis.
Detailed explanation-4: -b. Cost classifications are reasonably accurate. This is the correct assumption. The analysis relies heavily on accurate variable cost per unit and total fixed cost.