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 remain the same over the relevant range
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total variable costs remain the same over the relevant range
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all costs are variable or fixed
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units manufactured equal units sold
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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: -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: -Cost-Volume-Profit Analysis (CVP analysis), also commonly referred to as Break-Even Analysis, is a way for companies to determine how changes in costs (both variable and fixed) and sales volume affect a company’s profit.