Question

Which of the following are advantages of an activity-based costing approach to cost volume profit (CVP) analysis as compared to a CVP analysis based on traditional product costing?

Select one:

a. Fixed costs are viewed as fixed only with respect to changes in sales and production volume, but not as fixed with respect to changes in other cost drivers such as number of set-ups and number of material moves.

b. The assumption in traditional CVP analysis that sales and production volumes are equal can be relaxed

c. Unit variable costs are recognised more clearly.

d. Unit variable costs are recognised more clearly AND fixed costs are viewed as fixed only with respect to changes in sales and production volume, but not with respect to changes in other cost drivers such as number of set-ups and number of material moves.

Answer 1

Answer: d. Unit variable costs are recognized more clearly AND fixed costs are viewed as fixed only with respect to changes in sales and production volume, but not with respect to changes in other cost drivers such as a number of set-ups and number of material moves.

Explanation:

Cost volume profit analysis is a method of cost accounting in which we allocate variable cost in predetermined activity level and fixed costs are charged directly.

So the correct option is Unit variable costs are recognised more clearly AND fixed costs are viewed as fixed only with respect to changes in sales and production volume, but not with respect to changes in other cost drivers such as number of set-ups and number of material moves.