Q20-13RQ - Horngren'S Financial And Managerial Accounting

Question

What are the CVP assumptions?

Step-by-Step Solution

Answer

Answer

 

When the volume of a product changes, the price per unit does not change.

 

Step 1: CVP assumptions

CVP analysis assumes the following: 

1. The price per unit does not change as volume changes. 
2. Managers can classify each cost as variable, fixed, or mixed. 
3. The only factor that affects total costs is a change in volume, which increases or decreases total variable and mixed costs. 
4. Total fixed costs do not change. 
5. There are no changes in inventory levels.

Step 2: Limitation of assumptions

The above assumptions do not meet all business conditions and may not be relevant for the businesses.