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

Answer 1

The correct statement of risk in a cost-volume-profit (CVP) analysis is d. With risk, the probability distributions of the variable are known. Managers consider risk in both short-term and long-term decision-making. With risk, the probability distributions of variables such as sales, costs, and profits are known but may have a range of possible outcomes.

Step-by-step explanation:

The correct statement of risk in a cost-volume-profit (CVP) analysis is d. With risk, the probability distributions of the variable are known.

In a CVP analysis, risk refers to the uncertainty in sales, costs, and profits. Managers consider risk in both short-term and long-term decision-making. With risk, the probability distributions of variables such as sales, costs, and profits are known but may have a range of possible outcomes.