Question

Cost-volume-profit analysis assumes that over the relevant range

    A.   Variable costs are nonlinear.

    B.   Fixed costs are nonlinear.

    C.   Selling prices are unchanged.

    D.   Total costs are unchanged

Answer 1

Answer

C.   Selling prices are unchanged.

Explanation

Cost- volume-Profit (CVP) Analysis assumes the following:

• Variable costs will change proportionately. In other words, variable Costs will be linear.
• Fixed costs will not change at all. In other words, fixed Costs will also be linear.
• Selling Prices will be the same i.e unchanged.
• Total costs will change as the variable costs will increase with the level of production.

We can clearly see option c is correct.

In case of any doubt, please comment.