Which of the Following Assumptions Is Made When Doing a Cost

question 34

Multiple Choice

Which of the following assumptions is made when doing a cost volume profit analysis based on activity-based costing?

• A) Sales volume equals production volume.
• B) As production volume changes, the number of set-ups, inspections, material moves etc. does not change.
• C) The purchase price of raw materials per unit remains constant.
• D) Sales volume equals production volume AND the purchase price of raw materials per unit remains constant.

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Definitions:

Physical Inventory

The process of counting and verifying all physical goods and materials in stock by a business.

Shipping Costs

The expenses involved in transporting goods from one location to another, including freight charges, packaging, and handling fees.

Diseconomies of Scale

An economic concept where an increase in production leads to a rise in average costs per unit due to inefficiencies.

Economies of Scale

Cost advantages that a business can achieve by increasing the scale of production, leading to lower average costs per unit due to spread fixed costs and operational efficiencies.