In breakeven analysis, the reduction of the fixed cost of an alternative, while
ID: 453847 • Letter: I
Question
In breakeven analysis, the reduction of the fixed cost of an alternative, while leaving all other costs of alternatives the same
A) Will make it relatively more attractive at lower volumes of production
B) Will make it relatively less attractive at lower volumes of production
C) Will not change its attractiveness at lower volumes but will make it more expense on a per unit bases
D) Will result in the variable cost increasing because the combination of variable and fixed costs must stay the same.
Which of the following is generally not a reason businesses focus on short-term cost reduction instead of long-term cost reduction?
A) The sum of short-term costs is generally greater than the sum of long-term costs
B) Management promotions are based on short-term measures of performance
C) Investors want quick results
D) Long-term cost savings may appear to be less than they actually are
E) None of the above is a reason businesses focus on short-term cost reduction instead of long-term cost reduction
Breakeven analysis is used
A) When variance analysis can't be performed
B) As an alternative to direct tracing
C) To decide among alternatives with different fixed and variable costs
D) To decide among alternatives with financial and nonfinancial costs
E) To decide between short-term and long-term cost reduction
Explanation / Answer
A At lower volume of production assuming selling price and variable cost per unit is constant, lower volume will mean lower margin hence it is not attractive at lower volume of productionPer
B It will be less attractie at lower volume of production
C.Per unit expence realization being constant with cost of variables remining same, per unit cost will be more or lee depending on reduction in fixed cost.
D.Variable cost will change only when volume of sales change
Business does not go for short term cost reduction if sale in rising and margin is good for profit and also when short term cost is greater than long term cost.
Short term cost reduction is warranted if sale is dropping due to competition offerin lower price for similar product
Beak Even analysis is carried out to know the volume of product to be produced and sold where company does not earn profit nor earn loss. It is a concept which links cost to capacity. It helps knowing that greater volume of production means reduction in costand increse in profit.
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