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    CVP questions on ways to lower break-even point

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    1. "The relevant range pertains to fixed costs, not variable costs." Do you agree? Explain.

    2.Describe three ways of lowering a break-even point.

    3. "The contribution margin and gross margin are always equal." Do you agree? Explain.

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    Solution Preview

    1. "The relevant range pertains to fixed costs, not variable costs." Do you agree? Explain.

    The relevant range is applicable to both the fixed costs and the variable costs. Relevant range refers to the activity range over which the cost behavior is stable. A fixed cost would remain the same in totality and the variable cost will remain the same on a per unit basis.
    The relevant range is also applicable for variable costs. Let us take some example to understand. The variable costs are direct material and direct labor. Within a given relevant range the production process is set in one way, say the company would produce 0 to 10,000 units. If it has to ...

    Solution Summary

    The solution explains some Cost Volume Profit theory questions.

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