CVP analysis relies on all of the following assumptions except:
a. mixed costs can be used
b. inventory levels do not change
c. sales mix is constant
d. costs must be linear within the relevant range
Answer.a. mixed costs can be used
Cost Volume-Profit (CVP) analysis, explains the linkage of costs, revenue and profit. Its validity depends on the condition that no variable factors influence the inventory amounts, the sales mix, and that, within the relevant range of activity, cost are linear. But, CVP analysis is not based on the technical inability to use mixed costs (costs that consist both from fixed and variable sides). An appropriately performed mixed cost allocation may give rise to fixed and variable portions, which then can be incorporated into the CVP analysis.
Leave a Reply