Question

Which of the following is true about the assumptions underlying basic CVP analysis?

A) Only selling price is known and constant.
B) Only selling price and variable cost per unit are known and constant.
C) Only selling price, variable cost per unit, and total fixed costs are known and constant.
D) Selling price, variable cost per unit, fixed cost per unit, and total fixed costs are known and constant

Answer 1

The true assumption underlying basic CVP analysis is that selling price, variable cost per unit, and total fixed costs are known and constant.

Step-by-step explanation:

The question concerns the assumptions of Cost-Volume-Profit (CVP) analysis in the context of business economics. The correct answer to which assumptions underlie basic CVP analysis is: C) Only selling price, variable cost per unit, and total fixed costs are known and constant.

CVP analysis assumes that selling prices and variable costs per unit remain unchanged, and that total fixed costs are also constant within a relevant range of activity. Understanding these assumptions is critical for businesses when making decisions about pricing, production levels, and the resulting impacts on profitability. CVP analysis simplifies the complexity of costing by focusing on these key cost components and their interrelation with sales volume.