Final answer:
The false assumption in cost-volume-profit analysis is that inventory levels change during the period. CVP analysis assumes no changes in inventory as it affects the analysis of how costs, volume, and pricing impact profits.
Step-by-step explanation:
The false assumption in a cost-volume-profit analysis is that there are changes in the inventory quantities during the period. One of the critical assumptions of cost-volume-profit (CVP) analysis is that the number of units produced is equal to the number of units sold, meaning that there is no change in inventory levels during the period. This is because CVP analysis is concerned with understanding how changes in sales volume, cost and price will affect profits, and fluctuations in inventory can complicate this relationship.
CVP analysis assumes that all costs can be categorized as either fixed costs, which do not change with production volume, or variable costs, which are directly correlated with the volume of production. From a long-run perspective, firms use these calculations to help make decisions about production quantities and pricing to maximize profits, which also involves consideration of market structures and revenue analysis.