Question

Which of the following is not an assumption of cost volume profit analysis as described in your course text?

a. Selling price and variable cost per unit remain constant over all levels of production.
b. Fixed cost does not change over the relevant range.
c. Inventory cannot exceed 25% of total production in any period.
d. In a multiple product setting, the product mix remains constant.

Answer 1

One of the assumptions of cost volume profit analysis that is not described in the course text is that inventory cannot exceed 25% of total production in any period.

Step-by-step explanation:

Cost Volume Profit (CVP) analysis is a tool used by businesses to understand the relationship between sales revenue, costs, and profit at different levels of production. One of the assumptions of CVP analysis is that the selling price and variable cost per unit remain constant over all levels of production. This assumption helps to simplify calculations and analysis.

Out of the given options, the assumption that is not part of CVP analysis is:

c. Inventory cannot exceed 25% of total production in any period.

This assumption is not related to the relationship between sales revenue, costs, and profit, and therefore it is not considered as part of CVP analysis.