Asked by Annie Leishman on Jul 05, 2024
Verified
Which of the following statements is most correct with respect to the assumptions of the cost volume profit model?
A) The assumptions of the model are realistic.
B) The assumptions of the model are unrealistic, and therefore the model has little usefulness.
C) It is not possible to state whether the assumptions of the model are realistic or unrealistic.
D) The assumptions of the model are unrealistic, but the model has great usefulness in certain circumstances, as evidenced by its use in practice.
CVP Model Assumptions
Assumptions underlying Cost-Volume-Profit analysis, including constant sales price, variable and fixed costs, and operating efficiency.
Model Usefulness
The effectiveness and practicality of a theoretical model in explaining, predicting, or making decisions in real-world situations.
- Grasp the fundamental premises behind Cost-Volume-Profit analysis and their resulting implications.
Verified Answer
LN
Lexie NicolaJul 07, 2024
Final Answer :
D
Explanation :
The assumptions of the cost volume profit model, such as a linear relationship between sales volume and costs and fixed selling price, may not be entirely realistic in all situations. However, the model has proven to be immensely useful in practice as a tool for analyzing the effects of changes in volume, pricing, and cost structure on profitability. Thus, while the assumptions may be unrealistic, the model still has great value in certain circumstances.
Learning Objectives
- Grasp the fundamental premises behind Cost-Volume-Profit analysis and their resulting implications.
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