CVP-based sensitivity analysis highlights the risks and returns as fixed costs are substituted for variable costs in a company's cost structure.

Question

Quizplus · Accepted Answer

CVP-based sensitivity analysis involves analyzing how changes in fixed and variable costs affect a company's profits. By substituting fixed costs for variable costs, a company can potentially increase its profitability, but it also exposes itself to greater risk if sales volumes decrease. Therefore, the statement is true.

CVP-Based Sensitivity Analysis Highlights the Risks and Returns as Fixed