Cost-volume-profit analysis relies on an assumption that contribution margin varies directly with the level of activity.

Question

Quizplus · Accepted Answer

Cost-volume-profit (CVP) analysis assumes that the contribution margin (sales minus variable costs) will change in direct proportion to changes in the level of activity or volume, meaning as sales volume increases or decreases, the contribution margin will increase or decrease respectively.

Cost-Volume-Profit Analysis Relies on an Assumption That Contribution Margin Varies