COST ACCOUNTING
COST VOLUME PROFIT ANALYSIS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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CVP analysis
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Determine the product type
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The entity uses the relevant income/cost
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Allocating resources
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Detailed explanation-1: -Hence, the cost of production is considered for ‘make or buy’ decision.
Detailed explanation-2: -When making this decision, one must compare the incremental change in revenue for the seller, against which is offset the incremental change in costs. One must also consider whether there is a sufficient amount of incremental production capacity available that can be used to process the additional order.
Detailed explanation-3: -A company’s decision on whether to make or buy is based on its core competence. The production cost and quality problems are the major triggers of a make-or-buy decision. Other factors are managerial decisions and a company’s long-term business strategy that dictate the current operations pattern.