Question

CVP analysis assumes that all costs of a firm can be divided into..................

Answer 1

CVP analysis assumes that all costs of a firm can be divided into fixed costs and variable costs and helps firms understand how changes in production levels and sales volumes affect profitability.

Step-by-step explanation:

CVP analysis assumes that all costs of a firm can be divided into fixed costs and variable costs.

1. Fixed costs: These are costs that a firm must incur before producing any output. They include expenses such as rent, salaries, and insurance, which do not change with the level of production.
2. Variable costs: These are costs that vary with the level of production. They include expenses such as raw materials, direct labor, and utilities.

By dividing costs into fixed and variable components, CVP analysis helps firms understand how changes in production levels and sales volumes affect profitability.