Cost Volume Profit Analysis (CVP) Assumptions - Accounting

The video discusses four key assumptions necessary for conducting Cost-Volume-Profit (CVP) analysis. These assumptions include a constant selling price, linear costs that can be divided into variable and fixed elements, a constant sales mix for multi-product companies, and unchanging inventory levels in manufacturing companies. These assumptions, while not always factual, are essential for reliable CVP analysis.

What is the first assumption made in CVP analysis regarding the selling price?

• The selling price fluctuates randomly.

• The selling price remains constant.

• The selling price decreases over time.

• The selling price increases over time.

How are costs assumed to behave in CVP analysis?

• Costs are assumed to be unpredictable.

• Costs are assumed to be exponential.

• Costs are assumed to be linear.

• Costs are assumed to be non-linear.

In CVP analysis, how are mixed costs treated?

• They are broken down into variable and fixed elements.

• They are treated as fixed costs.

• They are ignored.

• They are treated as variable costs.

What assumption is made about the sales mix in multi-product companies?

• The sales mix is unpredictable.

• The sales mix is irrelevant.

• The sales mix is constant.

• The sales mix changes frequently.

For manufacturing companies, what is assumed about inventory levels?

• Inventory levels remain constant.

• Inventory levels decrease over time.

• Inventory levels are unpredictable.

• Inventory levels increase over time.