Question

Which of the following statements is true of risk in a cost-volume-profit (CVP) analysis?

a.With risk, the probability distributions are unknown.
b.Managers do not consider risk while making a long-term decision.
c.With risk, the probability distributions of the variable are known.
d.Managers do not consider risk while making a short-term decision.

Answer 1

In a cost-volume-profit analysis, managers consider risk by analyzing the probability distributions associated with different levels of sales, costs, and profits.

Step-by-step explanation:

Of the given statements, option c. is true of risk in a cost-volume-profit (CVP) analysis. With risk, the probability distributions of the variable are known. In CVP analysis, risk is considered by analyzing the probability distributions associated with different levels of sales, costs, and profits. By understanding the probability distributions, managers can make informed decisions regarding production levels, pricing, and profitability.