A technique uses the degrees of cost variability to measure the effect of changes in volume on resulting profits is:A. Standard costingB. Variance analysisC. Cost-volume-profit analysisD. Segment profitability analysis

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Armani

Business

14 May, 19:23

A technique uses the degrees of cost variability to measure the effect of changes in volume on resulting profits is:A. Standard costingB. Variance analysisC. Cost-volume-profit analysisD. Segment profitability analysis

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Porter Howell · Answer 1

C. Cost-volume-profit analysis

Explanation:

Costs-volume-profit analysis (CVP-analysis) is an element of cost management, the essence of which is to study the dependences of the financial results of an entity on the costs and volumes of production and sale of products, goods, services. This type of analysis can be used in pricing.

The following assumptions on which CVP analysis is based:

1) The volume of production is equal to the volume of sales and is the only factor affecting changes in costs and revenues of the enterprise. The value of stocks of manufactured products does not change.

2) All other variables (selling price of products, prices of materials and services used in production, variable costs per unit of output, labor productivity) are fixed within an acceptable range by the volume of production.

3) The analysis applies only to one product or a constant range of products. The structure of sales in a multi-product enterprise is constant.

4) Total costs and revenue are linear in terms of production.

The analysis is carried out within an acceptable range of production volume.

5) All costs are distributed between fixed and variable costs.

6) The analysis is carried out in the short term.

7) Fixed costs with changes in the volume of production do not change within an acceptable range of production volume, there are no structural changes.

Summarily, we could say that the technique is Costs Volume Profit analysis which measures the effect of changes in volume on resulting profits by using the degrees of cost variability.