When the assumption of linearity is applied to revenue in CVP analyses:
A) fixed cost per unit increases as revenue decreases.
B) variable cost per unit is linear with respect to total revenue.
C) the sales mix remains constant, but prices decrease as volumes increase.
D) the sales mix and all of the prices remain constant.

Question

Quizplus · Accepted Answer

The assumption of linearity in CVP (Cost-Volume-Profit) analyses implies that costs and revenues are linear over a relevant range, and this includes the assumption that the sales mix and prices remain constant. This allows for simpler calculations and predictions regarding the impact of changes in volume on profits.

When the Assumption of Linearity Is Applied to Revenue in CVP