Cost/volume/profit (CVP) analysis is a technique available to management to understand better the interrelationships of several factors that combine to determine a firm's operating profit, πB. As with many such techniques, the accountant oversimplifies the real world by making assumptions. Which of the following is not a major assumption underlying a conventional CVP analysis?
a. All costs incurred by a firm can be separated into their fixed and variable components.
b. The product selling price per unit is affected by changes in volume levels.
c. Operating efficiency and employee productivity are constant at all volume levels.
d. In multi-product situations, the sales mix changes as volume changes.
e. Total costs vary only with changes in sales volume.
Answers: 3
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