Cost Volume Profit Analysis Is Based on the Separation of Fixed

question 39

Multiple Choice

Cost volume profit analysis is based on the separation of fixed and variable costs. The analysis can be stated as an equation as follows: P = a(b - c) - d. In this statement of the equation, P is the profit, and

• A) b is the price per unit; c is the variable cost per unit; a is the number of units produced; d is the fixed cost.
• B) b is the number of units produced; c is the fixed cost; a is the price per unit; d is the variable cost per unit.
• C) b is the fixed cost; c is the number of units produced; a is the variable cost per unit; d is the price per unit.
• D) All of the given answers are incorrect because they all refer to the number of units produced. In fact, profit is determined according to the number of units sold.

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Definitions:

Franchise

A type of license that a party (franchisee) acquires to allow them to have access to a business's (franchisor) proprietary knowledge, processes, and trademarks to sell a product or provide a service under the business's name.

Cost Price Approach

A pricing method that determines the selling price of a product by adding a profit margin to the total cost of production.

Transfer Pricing

The pricing of goods, services, and intangibles transferred within divisions of a company or across affiliated entities to reflect market conditions.

Support Department

An organizational unit that provides essential services to other departments within an organization but does not directly contribute to profit.