ECONOMICS

Detailed explanation-1: -In CVP analysis, the term “cost” includes manufacturing costs, and selling and administrative expenses. A CVP income statement shows contribution margin instead of gross profit. If the unit contribution margin is $1 and unit sales are 10, 000 units above the break-even volume, then net income will be $10, 000.

Detailed explanation-2: -Cost volume profit (CVP) analysis reveals how many units of a product you need to sell to cover your costs or meet a profit target. It’s a type of break-even analysis that shows business owners how changes in costs and sales affect business profits.

Detailed explanation-3: -It represents the incremental money generated for each product/unit sold after deducting the variable portion of the firm’s costs. Basically, it shows the portion of sales that helps to cover the company’s fixed costs. Any remaining revenue left after covering fixed costs is the profit generated.

Detailed explanation-4: -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-5: -The point of a CVP analysis is to determine how changes in variable and fixed costs will affect profits. What are the three elements of cost-volume-profit analysis? The three main elements are cost, sales volume and price. A CVP analysis looks at how these elements influence profit.