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Questions and Answers
What is the main focus of Cost-Volume-Profit (CVP) analysis?
What is the main focus of Cost-Volume-Profit (CVP) analysis?
- Relationship between total costs and total revenue
- Relationship between historical costs and future costs
- Relationship between fixed costs and variable costs
- Relationship between selling prices, sales volume, costs, and profits (correct)
In which range are the assumptions of CVP analysis considered valid?
In which range are the assumptions of CVP analysis considered valid?
- Fixed range
- Irrelevant range
- Variable range
- Relevant range (correct)
What type of statement is used under CVP analysis to classify costs or expenses according to their behavior?
What type of statement is used under CVP analysis to classify costs or expenses according to their behavior?
- Income Statement
- Cash Flow Statement
- Contribution Income Statement (correct)
- Balance Sheet
What is the purpose of conducting a 'what if' analysis in CVP analysis?
What is the purpose of conducting a 'what if' analysis in CVP analysis?
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Which of the following is not a learning outcome of CVP analysis?
Which of the following is not a learning outcome of CVP analysis?
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Study Notes
Cost-Volume-Profit (CVP) Analysis
- The main focus of CVP analysis is to examine the relationship between a company's cost, volume, and profit to make informed decisions.
Assumptions of CVP Analysis
- The assumptions of CVP analysis are considered valid only within a relevant range, which is a limited range of production or sales.
Cost Classification
- Under CVP analysis, costs or expenses are classified according to their behavior using a Contribution Margin (CM) statement or a Profit-Volume (PV) graph.
'What If' Analysis
- The purpose of conducting a 'what if' analysis in CVP analysis is to predict the impact of changes in selling price, variable costs, or fixed costs on a company's profitability.
Learning Outcomes of CVP Analysis
- The learning outcomes of CVP analysis do not include determining the exact profit or loss of a company.
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