Question

Lucia is using cost-volume-profit analysis to predict profits for a new product line. Which of the following reflect how Lucia's analysis is subject to assumptions? (Check all that apply.)
A. Miscategorized variable costs cause more problems than miscategorized fixed costs.
B. The analysis lacks validity if the total fixed costs required for the calculated break-even point generates too high of capacity.
c. If costs are not accurately categorized as fixed or variable, the analysis may reflect too high of a break-even point.
d. If costs are not accurately categorized as fixed or variable, the analysis may reflect too low of a break-even point.

Answer 1

The analysis lacks validity if the total fixed costs required for the calculated break-even point generates too high of capacity.

Answer: Option B.

Explanation:

Cost–volume–profit, is a term which is mostly used in managerial economics. It is a form of cost accounting. It is a simplified model, useful for elementary instruction and for decisions that are to be taken in a short period of time by the company or the organisation.

Cost-volume-profit analysis is used to determine how the changes in costs and quantity affect a company's operating revenue and net income. In performing this analysis, there are several assumptions made, including: Sales price per unit is constant. Variable costs per unit are constant. Total fixed costs are constant.