Cost-Volume-Profit (CVP) Analysis Is a Simple but Powerful Tool to Assist

question 117

Multiple Choice

Cost-volume-profit (CVP) analysis is a simple but powerful tool to assist management in making operating decisions. Which of the following does not represent a potential use of CVP analysis?

• A) Ability to compute the break-even point.
• B) Ability to determine optimal sales volumes.
• C) Aids in evaluating tax planning alternatives.
• D) Aids in determining optimal pricing policies.

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Definitions:

Pro Rata Distribution

Pro rata distribution is a method of allocating a proportional amount or share of something such as dividends, assets, costs, or liabilities among all parties based on their respective shares.

FMV

Fair Market Value, the price that property or an asset would sell for on the open market under current conditions.

Basis

The original value or cost of an asset for tax purposes, used to determine capital gains or losses.

FMV

Stands for Fair Market Value, which is the price an asset would sell for on the open market, where both buyer and seller have reasonable knowledge of the asset and are willing to trade without pressure.