COST ACCOUNTING
COST VOLUME PROFIT ANALYSIS
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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unchanged
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higher
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lower
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indeterminate
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none of these
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Detailed explanation-1: -If you reduce the variable costs of the product, you increase the product’s contribution margin.
Detailed explanation-2: -Variable Cost per unit decreases: The total cost line will decrease, as total Cost includes fixed Costs and variable Costs. As production increases, fixed cost per unit decreases, leading to a lower total cost relative to total production.
Detailed explanation-3: -If the fixed costs for a firm increase, the contribution margin remains unaffected because the contribution margin is ascertained by deducting the total variable cost from the sales revenue.
Detailed explanation-4: -Because of the way contribution margin is calculated, an increase in fixed costs doesn’t directly change the margin, but it may well touch off a process that ultimately affects the margin.