The CVP graph uses the assumption that costs are linear over the relevant range.

Question

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The CVP (cost-volume-profit) graph assumes that costs are linear over the relevant range, meaning that the total cost increases proportionately with the level of activity or production. This assumption allows for the creation of a straight-line relationship between total revenue and total costs, which can be used to analyze and predict the profitability of different levels of output. However, it is important to note that this assumption may not hold true in all situations, particularly when there are fixed costs or other factors that can cause costs to change at different rates.

The CVP Graph Uses the Assumption That Costs Are Linear