How does the cost-volume-profit model accommodate non-linear costs and revenues?
A) Non-linear costs and revenues are ignored by the model.
B) Inventory levels are segregated into distinct ranges within which a linear relationship is expected to approximate the actual cost or revenue behavior.
C) It is not a problem since non-linear costs and revenues do not exist in practice.
D) None of these is correct.

Question

Quizplus · Accepted Answer

The cost-volume-profit model segregates inventory levels into distinct ranges within which a linear relationship is expected to approximate the actual cost or revenue behavior, accommodating non-linear costs and revenues. Therefore, option A is incorrect because non-linear costs and revenues are not ignored by the model. Option C is also incorrect as non-linear costs and revenues do exist in practice. Option D is incorrect because one of the options is correct.

How Does the Cost-Volume-Profit Model Accommodate Non-Linear Costs and Revenues