Cost-Volume-Profit Analysis Includes Some Inherent,simplifying Assumptions

question 10

Multiple Choice

Cost-volume-profit analysis includes some inherent,simplifying assumptions.Which of the following is not one of these assumptions?

• A)Cost and revenues are predictable and are linear over the relevant range.
• B)Variable costs fluctuate proportionally.
• C)Changes in beginning and ending inventory levels are insignificant in amount.
• D)Sales mix will change as fixed costs increase beyond the relevant range.

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Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the proportion of fixed versus variable costs a company has.

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's earnings before interest and taxes (EBIT) to a percentage change in sales, indicating the impact of fixed costs on profits.

High-low Method

The high-low method is an accounting technique used to estimate the variable and fixed costs of a business based on the highest and lowest levels of activity.

Unit Sales Price

The price at which an individual unit of a product is sold, important for determining profitability and setting pricing strategies.