Question

1.the accuracy of the cost-volume-profit analysis is limited because it assumes a strictly linear relationship between the variables.

true/false

2.database software is especially useful for performing cost-volume-profit sensitivity analysis.

true/false

3. to attain a target profit, the total gross margin generated from sales must be sufficient to cover total fixed costs plus the target profit.

true/false

3. if a company is operating beyond its break-even point, the sale of one more unit of the product increases the company's profit by the amount of the unit contribution margin.

true/false

Answer 1

1) True, the accuracy of CVP is limited because it assumes a stricter linear relationship between variables.

2) False, database software is not useful for carrying out CVP sensitivity analysis.

3) True, to attain target profit the total gross margin generated from sales must be sufficient to cover total fixed costs plus target profit as breakeven point in units = Total fixed cost + Target profit ÷ Contribution margin per unit where CM = SP per unit - Variable exp per unit

4) True , if the company is operating beyond breakeven point then the sale of one more unit of the product increases the company's profit by the unit contribution margin