Final answer:
The incorrect assumption of CVP analysis is that total costs curve upward when graphed. CVP assumes that total costs can be divided into fixed and variable components and that fixed costs are sunk and do not vary with production levels.
Step-by-step explanation:
The item that is NOT an assumption of Cost-Volume-Profit (CVP) analysis is: B) When graphed, total costs curve upward. CVP analysis is based on the assumptions that total costs can be divided into a fixed and a variable component (A), that the unit-selling price is constant (C), and that all revenues and costs can be compared without considering the time value of money (D). The upward-sloping total costs curve does not align with the traditional CVP assumptions because the fixed costs should be a horizontal line (as they do not change with the level of output), and only the variable costs should change with the quantity of output produced.
In CVP analysis, fixed costs are considered sunk costs and do not vary with the level of production. These costs are the vertical intercept of the total cost curve on a graph. Variable costs, on the other hand, change with the level of output and typically exhibit diminishing marginal returns, which causes the marginal cost of producing higher levels of output to rise. Therefore, the statement that total costs curve upward as output increases does not reflect the appropriate division of costs within the framework of CVP analysis.