Question

CVP analysis relies on the assumptions that costs are either strictly fixed or strictly variable. Consistent with these assumptions, as volume decreases total

a. fixed costs decrease
b. variable costs remain constant
c. costs decrease
d. costs remain constant

Answer 1

CVP analysis assumes that costs are either fixed or variable. When volume decreases, fixed costs remain constant while variable costs decrease.

Step-by-step explanation:

CVP analysis, also known as cost-volume-profit analysis, relies on the assumption that costs are either strictly fixed or strictly variable. When volume decreases, the fixed costs remain constant because they do not change regardless of the level of production. On the other hand, the variable costs decrease because producing a lower quantity of goods or services typically requires fewer variable inputs such as labor and raw materials.