When applying a cost volume profit analysis CVP certain assumptions must be respected which answer is not one of these assumption?

The assumptions that accountants impose when calculating CVP ratios are sources of possible limitations of the technique. Most CVP analyses are based on the static cost concept.

Table of Contents Show

• What is the semi-variable cost?
• What are the limitations of CVP analysis that may impair its usefulness as a planning tool for managers?
• What is the price per unit assumption?
• What are the assumptions when the sales mix is assumed to remain constant?
• Cost-volume-profit or break-even analysis objectives
• Assumptions
• Cost-volume-profit or break-even analysis objectives
• Assumptions
• Costs are classified into variable or fixed
• Linear relationship within a relevant range
• Inventory level does not change from period to period
• Volume is the only factor affecting variable costs
• Selling price is constant
• Cost-volume-profit or break-even analysis objectives
• Assumptions
• What is the semi-variable cost?
• What are the limitations of CVP analysis that may impair its usefulness as a planning tool for managers?
• What is the price per unit assumption?
• What are the assumptions when the sales mix is assumed to remain constant?
• Cost-volume-profit or break-even analysis objectives
• Assumptions

One assumption is that all costs can be classified into two categories: fixed costs and variable costs. This assumption is not always true because certain costs (e.g., depreciation) cannot be determined exactly. Different depreciation methods may yield different results.

There is also a third category of costs known as semi-variable costs. These costs are also called mixed costs because part of the cost is fixed and part is variable (for example, telephone expenses).

Another assumption is that fixed costs will not change at all levels of sales within the assumed relevant range of activity.

Other assumptions are that selling price per unit remains constant and that variable costs vary in direct proportion to changes in activity (i.e., as a percentage of sales revenue). In the second case, they remain constant.

Additionally, the sales mix is assumed to remain constant if more than one product is sold. Furthermore, the projections are over a short period only.

The limitations and assumptions of CVP analysis mentioned above impair but do not destroy the usefulness of the technique for managers. As such, CVP analysis still serves as a useful profit planning tool.

The main assumptions that accountants make when using cvp analysis are that fixed costs will not change within the relevant range of activity, all costs can be classified into fixed and variable, the selling price per unit will stay constant, and fixed costs remain constant.

What is the semi-variable cost?

A semi-variable cost is a mixed cost because part of the cost is fixed and part is variable (for example, telephone expenses).

What are the limitations of CVP analysis that may impair its usefulness as a planning tool for managers?

The limitations of cvp analysis are its assumptions. This means that it is assumed that the selling price per unit remains constant, variable costs vary in direct proportion to changes in activity, the projections cover only a short period, and the sales mix will remain constant if more than one product is sold.

What is the price per unit assumption?

The selling price per unit assumption means that any changes in activity will not affect selling prices within the relevant range of activity.

What are the assumptions when the sales mix is assumed to remain constant?

The assumptions when the sales mix is assumed to stay constant are that all products of a company will be treated equally, selling prices do not change with changes in product mix, and total variable costs remain constant.

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.

• Facebook
• LinkedIn
• Instagram
• Twitter
• YouTube

This is a short article that will walk you through the objectives of CVP analysis and some common assumptions revolving around the process.

Let’s try to understand the core objectives of cost-volume-profit (CVP) or break-even (BE) analysis followed by some assumptions underlying these objectives.

Cost-volume-profit or break-even analysis objectives

• To forecast profits: helps to identify profit relationships, costs and volumes for determining relative profitability and to compare inter-company profitability
• To set budgets: is useful in setting up flexible budgets that indicate costs at different activity levels
• To evaluate performance: helps performance evaluation by focusing on profits achieved and costs incurred
• To set pricing: plays an important part in stabilising volume. BE analysis helps organisations to formulate pricing policies
• To determine overheads: helps to determine the number of overheads that should be allocated to product costs at different levels of operation
• To achieve capacity: focuses on the importance of achieving capacity to achieve economy.

Assumptions

Here are some assumptions about the use of CVP analysis in business.

• CVP analysis costs can be segregated into fixed and variable portions and total fixed costs remain constant at all output levels.
• In CVP, cost linearity is preserved over the relevant range, and revenues are constant per unit.
• A business has a constant product mix and produces only one kind of product.

An efficient manager or business owner tries to bring out the best results from cost-volume-profit analysis, while steering clear of assumptions.

This is a short article that will walk you through the objectives of CVP analysis and some common assumptions revolving around the process.

Let’s try to understand the core objectives of cost-volume-profit (CVP) or break-even (BE) analysis followed by some assumptions underlying these objectives.

Cost-volume-profit or break-even analysis objectives

• To forecast profits: helps to identify profit relationships, costs and volumes for determining relative profitability and to compare inter-company profitability
• To set budgets: is useful in setting up flexible budgets that indicate costs at different activity levels
• To evaluate performance: helps performance evaluation by focusing on profits achieved and costs incurred
• To set pricing: plays an important part in stabilising volume. BE analysis helps organisations to formulate pricing policies
• To determine overheads: helps to determine the number of overheads that should be allocated to product costs at different levels of operation
• To achieve capacity: focuses on the importance of achieving capacity to achieve economy.

Assumptions

Here are some assumptions about the use of CVP analysis in business.

• CVP analysis costs can be segregated into fixed and variable portions and total fixed costs remain constant at all output levels.
• In CVP, cost linearity is preserved over the relevant range, and revenues are constant per unit.
• A business has a constant product mix and produces only one kind of product.

An efficient manager or business owner tries to bring out the best results from cost-volume-profit analysis, while steering clear of assumptions.

To summarize, the most important assumptions underlying CVP analysis are:

•Selling price, variable cost per unit, and total fixed costs remain constant through the relevant range. This means that a company can sell more or fewer units at the same price and that the company has no change in technical efficiency as volume changes.

•In multi-product situations, the product mix is known in advance.

•Costs can be accurately classified into their fixed and variable portions.

Critics may call these assumptions unrealistic in many situations, but they greatly simplify the analysis.

CVP Graph

This video review the components of the CVP Chart or graph.

Courses > Management Accounting > Cost-Volume-Profit (CVP) Analysis

✓ Checked for updates, April 2022. Accountingverse.com

Cost-volume-profit analysis (CVP analysis) helps a business in planning and decision-making. It provides information on how profits and costs are affected by changes in volume or level of activity.

The CVP analysis is subject to the following limiting assumptions.

Costs are classified into variable or fixed

All costs are presumed to be classified as either variable or fixed. In the real business environment however, costs behave differently. Users of CVP analysis need to be able to identify variable costs from fixed costs, and vice versa. Also, different methods are used to segregate mixed costs into purely variable and purely fixed.

Variable costs per unit are constant. Total variable cost changes directly with the volume of activity. On the other hand, total fixed costs remain constant regardless of the level of activity.

Linear relationship within a relevant range

Cost and revenue relationships are linear within a relevant range of activity and over a specified period of time.

Say for example, the fixed costs from 1 to 100,000 units might be different from the fixed costs at 100,001 and above. Variable cost per unit may also be different. Hence, we assume that we are working within one relevant range for which the behavior of fixed and variable costs are applicable.

Inventory level does not change from period to period

It is assumed that all units produced are sold during the period; hence, there is no change in beginning and ending inventory levels.

Volume is the only factor affecting variable costs

As volume (or level of activity) increases, the total variable cost increases directly with the change in volume. If the variable cost per unit is, say $5 per unit, the total variable costs would be equal to $5 multiplied by the number of units produced. It is important to take note that volume is the only factor affecting total variable costs. The variable cost per unit is assumed to be constant. Productivity and efficiency are ignored (assumed constant).

Selling price is constant

The selling price and market conditions are constant. Also, if the business produces and sells multiple products, the sales mix is assumed constant.

Conclusion

Despite its limitations, the CVP analysis is a useful tool in decision-making when used correctly. The limitations simplify the process of analyzing the effect of changes in activity level to costs and ultimately to profit. CVP analysis provide information to aid managers in determining the break-even point and in setting short-term goals such as sales targets, profit objectives, production budgets, and pricing strategies.

Key Takeaways

CVP analysis assumes the following:

1. Costs are segregated into purely fixed and purely variable
2. Costs behave in a linear manner, within a relevant range over a period of time
3. Units produced is always equal to units sold (P=S), hence no change in inventory
4. Volume is the only factor affecting variable costs, hence variable cost per unit is always constant
5. Selling price is constant

Web link

  Assumptions in CVP analysis  

APA format

Assumptions in CVP analysis (2022). Accountingverse.
//www.accountingverse.com/managerial-accounting/cvp-analysis/cvp-assumptions.html

Next Lesson

→

Chapter Outline

≡

Cost-Volume-Profit (CVP) Analysis

report this ad

report this ad

This is a short article that will walk you through the objectives of CVP analysis and some common assumptions revolving around the process.

Let’s try to understand the core objectives of cost-volume-profit (CVP) or break-even (BE) analysis followed by some assumptions underlying these objectives.

Cost-volume-profit or break-even analysis objectives

• To forecast profits: helps to identify profit relationships, costs and volumes for determining relative profitability and to compare inter-company profitability
• To set budgets: is useful in setting up flexible budgets that indicate costs at different activity levels
• To evaluate performance: helps performance evaluation by focusing on profits achieved and costs incurred
• To set pricing: plays an important part in stabilising volume. BE analysis helps organisations to formulate pricing policies
• To determine overheads: helps to determine the number of overheads that should be allocated to product costs at different levels of operation
• To achieve capacity: focuses on the importance of achieving capacity to achieve economy.

Assumptions

Here are some assumptions about the use of CVP analysis in business.

• CVP analysis costs can be segregated into fixed and variable portions and total fixed costs remain constant at all output levels.
• In CVP, cost linearity is preserved over the relevant range, and revenues are constant per unit.
• A business has a constant product mix and produces only one kind of product.

An efficient manager or business owner tries to bring out the best results from cost-volume-profit analysis, while steering clear of assumptions.

why is it important that the different systems works together properly?​

hii can you please help me, study the simple seismograph below and complete the table. show your solutions​

hi please help me with this, no plagiarized answer please​

5. Four different kinds of vehicles such as 10-wheeler truck, van, car, and motorcycle moving in a highway at the same speed of 60 km/h. Which among t … he vehicles have the greatest inertia? A. car B. van C. motorcycle D. 10-wheeler truck 6. Based on your answer in item #5, explain why your chosen vehicle has the greatest inertia?​

encircle the location of mt pinatobo taal mayon​

I need your help student now, thank you. ​

Think of recent problem in you barrangay

my cousin needs help i forgot about this one ​

What is the starting temperature? a. 21° b. 0° c. 32° d. 100°

I need help right now please​

Task 3: FRAMING Direction: Choose 3 words from composing activity then construct a graphic organizer/ concept map or word frames about them. Definitio … n Facts Examples Task /Classification Definition Task /Classification Examples Definition Examples Facts Facts Task /Classification

7. why are month of june and november are wet seasons? because of the___a. doldrums b. ocean currentsc. northwest monsoond. southwest monsoon8. the ve … ry first scientest to use telescope to observe the stars and the moon is___a.galileo galileeb. jhun and janice of winter sonatac. leonardo da vincid. sir isaac newton9. a facility with dome-rotating roof used by the scientest?a. observatoriesb. satelitec. space jamd. space rocket10. a special telescope that can see image objects with tha aide radiation?a. hubble space telescopeb. optical telescopec. radio telescoped. spectroscope11. it makea use of mirrors and lenses. they need light coming from the stars so the can be used at night when stars are visible.a. hubble space telescopeb. spectroscopec. ketch telescoped. optical12. they are group of stars that forms patterns in the sky.a. constellationb. galaxyc. starsd. nebula13. there arw how many known constellation.a. 50b. 60c. 88d. 10014. a constellation in the northern sky which includes the star polarisa. little deeperb. big deeperc. cassiopeiad. pegasus15. rigel is the constellation of___a. centaurusb. milk wayc. oriond. pegasus16. which is not a zodiac constellatioa. librab. phoenixc. sagitariusd. cassiopeiaplease po pahelp.. please​

Need help po need na now​

Need help po need napo now​

Ron rolls a 7.0 kg bowling ball down the alley and hits the bowling pin in a forward velocity at 14.0 m/s what is the final velocity of the bowling ba … ll​

Need help po salamat po​

A 12,600-kg railroad car travels alone on a level frictionless tracks with a constant speed of 18.0 m/s what will be the car's new speed​

Use one spread of your Science notebook to fill-in the table below with information that will differentiate the types of wind systems in our country.​

If a ball is traveling east at a momentum of 25 kg m/s and hits another ball going west at a momentum of 15 kg m/s, what will be the total momentum of … both balls after collision? a. 10 kg m/s c. 25 kg m/s b. 15 kg m/s d. 40 kg m/s

Learning Task 1. Applying the equations above, solve the problems below: (Show your complete solution)1. A 10 000 kg railroad car is traveling at 3 m/ … s when it strikes another 5000 kg railroad car that is at rest. If the cars lock together, what is the final speed of the two railroad cars?Given: ______________________________________________________________________________Formula: __________________________Solution: Final answer: ________________________2. A 2kg object is at rest. A 4 kg object collides against it with a velocity of 5 m/s sending it flying a velocity of 8 m/s. What is the final velocity of the 4kg object after the collision?Given: __________________________________________________________________________________________________________________________________Formula: __________________________Solution:pls help po​

This is a short article that will walk you through the objectives of CVP analysis and some common assumptions revolving around the process.

Let’s try to understand the core objectives of cost-volume-profit (CVP) or break-even (BE) analysis followed by some assumptions underlying these objectives.

Cost-volume-profit or break-even analysis objectives

• To forecast profits: helps to identify profit relationships, costs and volumes for determining relative profitability and to compare inter-company profitability
• To set budgets: is useful in setting up flexible budgets that indicate costs at different activity levels
• To evaluate performance: helps performance evaluation by focusing on profits achieved and costs incurred
• To set pricing: plays an important part in stabilising volume. BE analysis helps organisations to formulate pricing policies
• To determine overheads: helps to determine the number of overheads that should be allocated to product costs at different levels of operation
• To achieve capacity: focuses on the importance of achieving capacity to achieve economy.

Assumptions

Here are some assumptions about the use of CVP analysis in business.

• CVP analysis costs can be segregated into fixed and variable portions and total fixed costs remain constant at all output levels.
• In CVP, cost linearity is preserved over the relevant range, and revenues are constant per unit.
• A business has a constant product mix and produces only one kind of product.

An efficient manager or business owner tries to bring out the best results from cost-volume-profit analysis, while steering clear of assumptions.