Cost/volume/profit (CVP) Analysis Is a Technique Available to Management to Understand

question 105

Multiple Choice

Cost/volume/profit (CVP) analysis is a technique available to management to understand better the interrelationships of several factors that combine to determine a firm's operating profit, πB. As with many such techniques, the accountant oversimplifies the real world by making assumptions. Which of the following is not a major assumption underlying a conventional CVP analysis?

• A) All costs incurred by a firm can be separated into their fixed and variable components.
• B) The product selling price per unit is affected by changes in volume levels.
• C) Operating efficiency and employee productivity are constant at all volume levels.
• D) In multi-product situations, the sales mix changes as volume changes.
• E) Total costs vary only with changes in sales volume

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Definitions:

Implied Authorization

An understanding that an agent has the approval to perform acts that are reasonably necessary to accomplish the purpose of an agency.

Offeror

The person or entity who makes a proposal or offer, especially in a contractual context.

Objective Standards

Criteria or benchmarks that are not influenced by personal feelings, interpretations, or prejudice; based on facts.

Subjective Standards

Criteria or guidelines that are based on personal opinions, feelings, or tastes, rather than objective, measurable indicators.