Cost-Volume-Profit Analysis Is Based on Certain General Assumptions

question 91

Multiple Choice

Cost-volume-profit analysis is based on certain general assumptions. Which of the following is not one of these assumptions?

• A) Product prices will remain constant as volume varies within the relevant range.
• B) Costs can be categorized as fixed, variable, or semivariable.
• C) The efficiency and productivity of the production process and workers will change to reflect manufacturing advances.
• D) Total fixed costs remain constant as activity changes.
• E) Unit variable cost remains constant as activity changes.

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Definitions:

Equity Method

An accounting technique used by firms to assess the profits earned through their investment in other companies, by recording such investments at cost and periodically adjusting to reflect the share in profits or losses.

Impairment Loss

A financial accounting concept that represents the reduction in the recoverable amount of an asset below its carrying amount.

Ownership Interest

The proportion of shares or rights in a company held by an investor, indicating the level of control and financial stake.

Equity Method

A financial accounting approach for recording investments, reflecting changes in the investment value based on the investor’s proportionate share in the investee’s net income or loss.