Question

Which of the following assumptions is used in cost-volume profit analysis? (Accounting Question)

a. All costs are classified as fixed or variable

b. The total cost function is linear

c. The total revenue function is linear

d. All of the above

Answer 1

Solution. The correct option is d.all of the above

Explanation: Cost-volume profit analysis facilitates in managerial decisions by recording and analyzing how changes in volume of production and costs affects in net income generation in an organization. It encompasses all costs as fixed or variable, total cost function linear, total revenue function linear throughout the activity as it records point where total costs equals total revenues of an organization, and provides information for decision making activities for an organization to sustain long in competitive economic market.