A number of assumptions underlie cost-volume-profit (CVP) analysis: These cost volume profit analysis assumptions are as follows: Selling price is constant. The price of a product or service will not change as volume changes. Costs are linear and can be accurately divided into variable and fixed elements.
The following are the assumptions of the CVP analysis :- 1. Selling price, variable cost per unit, and total fixed costs all will remain constant through out the relevant range. 2. In multi-product si view the full answer
A) Total costs can be divided into a fixed component and a component that is variable with respect to the level of output. Which of the following is true of CVP analysis? A) Costs may be separated into separate inventoriable and period components with respect to the level of output.
The behavior of revenues and expenses is accurately portrayed as linear over the relevant range. D. The number of output units is the only driver. A. The time value of money is incorporated in the analysis.
CVP analysis makes no assumptions related to beginning inventory and ending inventory. Since CVP is applied when using the variable costing model the change in inventory is not factored into the financials and thus is not an underlying assumption.
Answer and Explanation: The correct answer is B. Direct labor. Direct labor is a variable cost because the cost of labor will vary on the units produced by the company during the period.
Variable costs are costs that change as the volume changes. Examples of variable costs are raw materials, piece-rate labor, production supplies, commissions, delivery costs, packaging supplies, and credit card fees.
The organizational function of management is where CVP analysis is most applicable, as this gives managers a sense of what they will need and how much they need to produce to break even and make profits.
Wages paid to workers however can vary as the number of workers increase or decrease. Hence it is not considered as a fixed cost.
Expenditure on machines is a fixed cost because it recurs in the same amount per period throughout the useful life of an asset and it cannot be considered a variable cost since it does not vary with activity volume.
Wages paid to the factory labour are costs that are directly proportional to the level of production. If zero output is being produced then these costs do not have to be incurred. These costs vary with the level of output produced. Therefore, they are classified as variable costs.
Variable Cost is also known as direct costing.
Answer» c. costs that change with the level of production.
(i) All costs can be resolved into fixed and variable elements. (ii) Over the activity range being considered costs and revenues behave in a linear fashion. (iii) The only factor affecting costs and revenues is volume. (iv) The technology, production methods and efficiency remain unchanged.
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.
Which of the following is an assumption of CVP analysis? Total cost can be divided into a fixed component and a component that is variable with respect to the level of output.
Fixed costs include any number of expenses, including rental lease payments, salaries, insurance, property taxes, interest expenses, depreciation, and potentially some utilities. For instance, someone who starts a new business would likely begin with fixed costs for rent and management salaries.
Examples of fixed costs include straight-line depreciation, insurance, property taxes, rent, supervisory salaries, administrative salaries, and advertising. Unlike variable costs, fixed costs are not affected by changes in activity.
Is depreciation a fixed cost? Depreciation is a fixed cost using most of the depreciation methods, since the amount is set each year, regardless of whether the business' activity levels change.
Fixed costs include various indirect costs and fixed manufacturing overhead costs. Variable costs include direct labor, direct materials, and variable overhead.
A. use CVP analysis because it assumes certainty.
D) The operating income area is the section where the total costs line is above the total revenues line.
A) Costs may be separated into separate inventoriable and period components with respect to the level of output.
B) Total revenues and total costs are linear in relation to output units.
C. The behavior of revenues and expenses is accurately portrayed as linear over the relevant range.
A. The time value of money is incorporated in the analysis.
A) Total costs can be divided into a fixed component and a component that is variable with respect to the level of output.
A number of assumptions underlie cost-volume-profit (CVP) analysis: These cost volume profit analysis assumptions are as follows: 1 Selling price is constant. The price of a product or service will not change as volume changes. 2 Costs are linear and can be accurately divided into variable and fixed elements. The variable element is constant per unit, and the fixed element is constant in total over the relevant range. 3 In multi-product companies, the sales mix is constant. 4 In manufacturing companies, inventories do not change. The number of units produced equals the number of units sold.
Costs are linear and can be accurately divided into variable and fixed elements. The variable element is constant per unit, and the fixed element is constant in total over the relevant range. In multi-product companies, the sales mix is constant. In manufacturing companies, inventories do not change. The number of units produced equals the number ...
In manufacturing companies, inventories do not change. The number of units produced equals the number of units sold. While some of these assumptions may be violated in practice, the violations are usually not serious enough to call into question the basic validity of CVP analysis.