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Question 2 1 pts Identify the major simplifying assumption that underlies CVP analysis. The major simplifying assumption is that all costs are variable based upon the level of output, so a short-term horizon is predicable for the analysis. The major simplifying assumption is that costs can be adjusted to be either fixed or variable in the different scenarios to determine profitability. The major simplifying assumption is there is a single cost driver used and the others are disregarded as irrelevant for the analysis. The major simplifying assumption is that we can classify costs as either variable or fixed with respect to a single measure of the volume of output activity. Question 4 1 pts "Companies in the same industry generally have about the same break-even point." Do you agree? Explain. It depends. The break-even point for companies in the same industry are only similar if supplies are purchased from the same supplier. Yes. Company costs in the same industry are highly competitive making break-even points close for each company. No. Break-even points can vary greatly within an industry. Yes. Break-even points are usually similar because operations have the same fixed and variable costs. Question 7 1 pts Suppose a company with high operating leverage is also operating at near capacity for all its fixed-cost resources. How could an increase in sales volume result in decreasing economies of scale for this company? An increase in demand for a company's products will drive almost all other cost-driver levels higher. This will cause cost drivers to exceed capacity or the upper end of the relevant range for its fixed-cost resources. The fixed costs will then be spread out over the increased demand, and thus cost per cost-driver unit may decrease. An increase in demand for a company's products will drive almost all other cost-driver levels higher. This will cause cost drivers to exceed capacity or the upper end of the relevant range for its fixed-cost resources. Since fixed-cost resources must be purchased in "chunks" of capacity, the proportional increase in cost may exceed the proportional increase in the use of the related cost-driver. Thus cost per cost-driver unit may increase. An increase in demand for a company's products will drive a small number of cost-driver levels higher. This will cause cost drivers to slight rise, but not exceed capacity or the upper end of the relevant range for its fixed-cost resources. Thus cost per cost-driver unit will remain the same. An increase in demand for a company's products will not drive cost-driver levels higher. This will cause cost drivers to stay near capacity without exceeding capacity. Since fixed-cost resources must be purchased in "chunks" of capacity and the capacity level has not changed, the cost per cost-driver unit will remain the same. Question 8 1 pts "The contribution margin and gross margin are always equal." Do you agree? Explain. No. The contribution margin is the sales price less all variable expenses; whereas the gross margin is the contribution margin less fixed expenses. O Yes. The end result for the contribution margin and gross margin are always equal as they take into account the same expenses, just in a different order. No. The contribution margin is the sales price less all variable expenses; whereas the gross margin is the sales price less the cost of goods sold. Depending on the costs incurred and type of business, these amounts could be different. No. The contribution margin is the sales price less the cost of goods sold; whereas the gross margin is the sales price less all variable expenses. Depending on the costs incurred and type of business, these amounts could be different