Which of the Following Statements Regarding Cost-Volume-Profit Analysis Is Incorrect

question 6

Multiple Choice

Which of the following statements regarding cost-volume-profit analysis is incorrect?

• A) Cost-volume-profit analysis assumes that fixed cost per unit is constant.
• B) Cost-volume-profit analysis assumes that the selling price cost per unit is constant.
• C) An increase in inventory during a period will affect cost-volume-profit relationships.
• D) Although cost-volume-profit analysis is based on assumptions that seldom will be perfectly achieved, the technique is still useful to managers.

Understand the relationship between average total costs (ATC), average variable costs (AVC), and total costs (TC).

Identify how to calculate total cost, average fixed cost, marginal cost, and average variable cost from given data.

Comprehend the concept of diminishing marginal returns and its effect on cost curves.

Grasp the factors leading to shifts or movements along the cost curves in the short run.

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Definitions:

United States

A country in North America, comprising 50 states, known for its economic and military power as well as its cultural influence worldwide.

England

A country in Europe known for its rich history, contributions to economic theory, and as the birthplace of the industrial revolution.

Demand Segmentation

The process of dividing a market into distinct subsets of customers according to different needs, characteristics, or behaviors, who might require separate products or marketing mixes.

Bubbles

Economic phenomena characterized by a rapid increase in asset prices followed by a sharp decline, often due to speculative trading.