Question

Which of the following is true of cost-volume-profit analysis?

A) The theory assumes that all costs are variable.
B) The theory assumes that units manufactured equal units sold.
C) The theory states that total variable costs remain the same over a relevant range.
D) The theory states that total costs remain the same over the relevant range.

Answer 1

Cost-volume-profit analysis is a tool used to analyze how changes in cost, volume, and price affect profitability. The correct answer is C) The theory states that total variable costs remain the same over a relevant range.

Step-by-step explanation:

Cost-volume-profit analysis is a tool used by businesses to analyze how changes in cost, volume, and price affect a company's profitability. Of the options provided, the correct answer is C) The theory states that total variable costs remain the same over a relevant range. In cost-volume-profit analysis, costs are divided into fixed costs and variable costs. Fixed costs remain constant regardless of the level of production or sales, while variable costs change in proportion to the level of production or sales. In this analysis, it is assumed that total variable costs remain the same over a relevant range, meaning that the per unit variable cost remains constant. For example, if a company produces and sells 100 units and the variable cost per unit is $5, then the total variable cost would be $500. If the company produces and sells 200 units, the total variable cost would be $1,000 ($5 per unit x 200 units), assuming that the per unit cost remains constant.