Question

What are the basic assumptions of CVP analysis with regard to variable cost, fixed cost, and selling price per unit? (Assume a single product).

Answer 1

cost-volume-profit analysis makes several basic assumptions, which includes,

1.The sales price, fixed costs, and variable cost per unit are constant.

2.The selling price and market conditions are also constant. If the business produces and sells multiple products, the sales mix is assumed constant.

3. The variable and fixed cost can be segregated from the cost.

4. The inventory produced during the time will be sold. Hence no opening or closing inventorys.