Reference no: EM132968153

Problem 1: Which of the following are assumptions underlying cost-volume-profit analysis? (Check all that apply.)

Option 1: Revenue and costs information is known, as opposed to estimated.
Option 2: Sales revenue and costs are linear over a production volume range.
Option 3: Physical good inventory levels do not change substantially during an accounting period.
Option 4: Costs can be categorized as fixed or variable.

Problem 2: Lucia is using cost-volume-profit analysis to predict profits for a new product line. Which of the following reflect how Lucia's analysis is subject to assumptions?

Option 1: The analysis lacks validity if the total fixed costs required for the calculated break-even point generate too low of capacity.
Option 2: When costs that are classified as variable actually are fixed costs, the analysis may lack validity.
Option 3: Because it is a new product line, and actual cost information is not available, Lucia cannot use cost-volume profit analysis.
Option 4: If the inventory changes, the quantity used to calculate total variable costs is different than the quantity used to calculate total revenues.