Multiple Choice
Which inventory costing system is most likely to produce the least cost distortion when tracking the cost of goods sold?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Which of the following statements about cost-volume-profit (CVP) analysis and breakeven calculation is TRUE?
A
CVP analysis can only be used to calculate the breakeven point in units, not in sales dollars.
B
CVP analysis can be used to calculate the breakeven point in both units and sales dollars.
C
CVP analysis is not related to breakeven calculations.
D
CVP analysis is only applicable under the periodic inventory system.
Verified step by step guidance1
Step 1: Understand the concept of Cost-Volume-Profit (CVP) analysis. CVP analysis is a financial tool used to determine how changes in costs, sales volume, and price affect a company's profit. It is closely related to breakeven calculations, which identify the point at which total revenue equals total costs, resulting in zero profit.
Step 2: Clarify the breakeven point calculation. The breakeven point can be calculated in two ways: (1) in units, which tells how many units need to be sold to cover costs, and (2) in sales dollars, which tells the total revenue required to cover costs. Both methods are part of CVP analysis.
Step 3: Evaluate the first statement: 'CVP analysis can only be used to calculate the breakeven point in units, not in sales dollars.' This is incorrect because CVP analysis can calculate the breakeven point in both units and sales dollars.
Step 4: Evaluate the second statement: 'CVP analysis can be used to calculate the breakeven point in both units and sales dollars.' This is correct because CVP analysis provides flexibility in calculating breakeven points in different formats.
Step 5: Evaluate the remaining statements: 'CVP analysis is not related to breakeven calculations' and 'CVP analysis is only applicable under the periodic inventory system.' Both are incorrect because CVP analysis is directly related to breakeven calculations and is applicable regardless of the inventory system used.
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