Final answer:
The statement 'Variable costs remain constant per unit' is not inherently incorrect, but if interpreted to mean that total variable costs remain constant regardless of production levels, then it would not be an assumption of CVP analysis. Fixed costs remain constant, the sales mix is assumed constant, and it's presumed the activity level stays within the relevant range for the analysis.
Step-by-step explanation:
The question poses a scenario where we need to identify which statement is not an assumption in Cost-Volume-Profit (CVP) analysis from the following options:
- Fixed costs remain constant
- Variable costs remain constant per unit
- Sales mix remains constant
- The level of activity remains within the relevant range
All of these are typically considered to be assumptions of CVP analysis except for the notion that "variable costs remain constant per unit". CVP analysis does assume that variable costs per unit stay constant within the relevant range of activity. However, if this question is interpreted as implying that variable costs are constant in total, then it is not accurate. Variable costs change in direct proportion to a firm's level of production. Meanwhile, fixed costs do remain constant in total, sales mix is presumed to be consistent, and the analysis assumes that the activity level will remain within the range where the fixed and variable cost assumptions hold true.
Fixed costs are expenditures that remain unchanged regardless of the level of production. Examples include machinery, rent, and advertising costs. These costs don't fluctuate with production volume in the short run. Understanding the relationship between average cost, average variable cost, and marginal cost is pivotal in CVP analysis for making informed decisions in a business context.