Cost-Volume-Profit (CVP) Analysis: Variable and Fixed Cost Behavior
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Questions and Answers

Which of the following best describes variable cost?

  • A cost that is only incurred when the activity level is at its peak
  • A cost that remains constant regardless of the level of activity
  • A cost that varies in direct proportion to changes in the level of activity (correct)
  • A cost that increases exponentially with the level of activity

    • What is the characteristic of fixed cost?

  • It is only incurred when the activity level is at its peak
  • It remains constant regardless of the level of activity (correct)
  • It varies in total in direct proportion to changes in the level of activity
  • It increases exponentially with the level of activity

    • In CVP analysis, what is meant by 'break-even' point?

  • The point where total costs exceed sales revenue
  • The point where profit is maximized
  • The point where no profit or loss is incurred (correct)
  • The point where sales revenue exceeds total costs

    • What does 'margin of safety' represent in CVP analysis?

    <p>The difference between actual sales and the break-even sales</p> Signup and view all the answers

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