Question 1: Why is CVP analysis generally used as a short run tool? Would CVP ever be appropriate as a long run model?
Question 2: Define and explain the relationship between margin of safety and degree of operating leverage.
Question 3: (break-even point) Llano Lamps has the following revenue and cost functions:
i. Revenue = $70 per unit
ii. Cost = $90,000 + $40 per unit
A. What is the break-even point in units?
B. What is the break-even point in dollars?
Question 4: What does the term relevance mean in the context of making management decisions?
The term relevance represents the relevant cost that is associated with the management decisions. It may be relevant to one management decision but not to the others. So they are the particular, specified costs.
Question 5: What are opportunity costs, and why are they often the most difficult cost to analyze in decision making?