As a cost and management accountant you always advocate about the use of cost volume profit (CVP) analysis and activity based costing in different cost management scenario. Thats why management of the PQR Limited wants you to explain the following issues for their next cost management move for the organisation.

Required:

1. What is a cost driver? What is the cost driver in conventional cost volume profit (CVP) analysis? How is the cost driver measured in conventional CVP analysis? (7 marks)

2. In activitybased costing, costs are classified into unit level, batch level, product level and facility level. How are these categories typically handled in CVP analysis, where there are only two categories available: fixed or variable? (7 marks)

3. In an environment where activitybased costing is necessary and appropriate, is the relevance of conventional CVP analysis enhanced or diminished? Explain. (7 marks)

4. Explain the additional limiting assumption of using CVP analysis under activitybased costing.