The assumptions that underlie basic CVP analysis include all of the following ex
ID: 2496669 • Letter: T
Question
The assumptions that underlie basic CVP analysis include all of the following except:
a. when more than one product is sold, total sales will be in a constant sales mix.
b. all costs can be classified as variable or fixed with reasonable accuracy.
c. the behavior of both costs and revenues is linear throughout the relevant range.
d. All these are assumptions.
When there is beginning work in process, units transferred out are computed by subtracting:
a. beginning work in process units from the units to be accounted for.
b. ending work in process units from the units started into production.
c. beginning work in process units from the units started into production.
d. ending work in process units from the units accounted for.
Jameson Company desires net income of $1,100,000 when it has $2,500,000 of fixed costs and variable costs of 60% of sales. Required sales equals:
a. $2,750,000.
b. $6,000,000.
c. $6,250,000.
d. $9,000,000.
Explanation / Answer
1st Answer. Option- (c)
Assumptions under CVP analysis includes Options a&b but not c. Because, behaviour of costs and revenues
never remains linear because of presence of an element called fixed costs. That means total costs & total
revenue ratios never remain constant. So Non-linear.
2nd Answer. Option - (a)
Units transferred out are computed always by subtracting opening work in progress from units to be accounted for. Here units to be accounted for = opening work in progress + Units started in production.
3rd answer. Option - (d)
Contribution = Fixed costs + Net income
= 2,500,000 + 1,100,000 = 3,600,000
Given variable costs are 60% of sales. This implies contribution is 40% of sales
This implies, Sales = Contribution/40% = 3,600,000/40% = 9,000,000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.