COST ACCOUNTING
COST VOLUME PROFIT ANALYSIS
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
selling prices remain constant
|
|
|
there is a single revenue and cost driver
|
|
|
total fixed costs vary inversely with the output level
|
|
|
total costs are linear within the relevant range
|
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: -Here are some assumptions about the use of CVP analysis in business. CVP analysis costs can be segregated into fixed and variable portions and total fixed costs remain constant at all output levels. In CVP, cost linearity is preserved over the relevant range, and revenues are constant per unit.
Detailed explanation-3: -The statement is FALSE. One of the assumptions of CVP analysis is that fixed costs remain constant within the relevant range and another is the variable costs stay the same per unit.
Detailed explanation-4: -Fixed costs do not vary with the production level. Total fixed costs remain the same, within the relevant range. However, the fixed cost per unit decreases as production increases, because the same fixed costs are spread over more units.