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Hospitality Industry Managerial Accounting 8th Edition

Hospitality Industry Managerial Accounting (8th Edition)

Book Edition8th Edition
Author(s)Schmidgall
ISBN9780866124973
PublisherEduc. Inst. Of The American Hotel & Motel Assoc.
SubjectAccounting

Chapter 7, End of Chapter, Review Questions, Exercise 1

Page 380

Here is a tip:

Cost volume profit analysis examines the relationship among the costs of the products, sales volume, and profitability of the operations.

Explanation

Assumptions of CVP model:

  • Fixed costs do not vary in a short period of time.
  • Variable cost changes linearly with the units sold.
  • Sales amount is directly related to volume sold. 
  • Mixed cost involves both fixed and variable costs.
  • Price of units remains the same even when the units of the product change.
  • Only quantitative factors are considered under the CVP model.

Verified Answer

  • Fixed cost remains constant in a short period of time.
  • Sales and variable cost changes linearly with units sold.
  • Mixed costs include both fixed and variable costs,
  • Only quantitative factors are considered.
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