Like many forms of analysis, cost-volume-profit (CVP) analysis must make assumptions so that calculations can be made. The following statements inaccurately describe the basic assumptions of CVP analysis.
a. The selling price varies throughout most of the relevant range. In other words, we assume that the sales price of the product changes somewhat as volume changes.
b. Costs are curvilinear. Although costs may behave in a linear fashion, they can be approximated by a curvilinear or quadratic relationship between cost and volume within the relevant range.
c. The sales mix used to calculate the contribution margin is proportional to the product mix.
d. The amount of inventory varies as sales occur. In other words, the number of units produced does not equal the numbers of units sold.

Review these statements and then rewrite them in their correct form.

  • CreatedMarch 11, 2015
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