A limiting assumption in CVP analysis is that
A) The behavior of both revenues and costs is linear throughout the entire relevant range
B) Inventories change in breakeven computations
C) The sales mix is not constant
D) Efficiency in operations is not constant

Question

Quizplus · Accepted Answer

CVP analysis assumes that both revenues and costs behave linearly within the relevant range. This means that total revenue changes proportionately with the level of activity, and variable costs increase or decrease proportionately with changes in the level of activity. This assumption may not hold true if there are changes in the sales mix or if there are nonlinear relationships between revenues and costs. However, it is a necessary assumption for conducting CVP analysis as it simplifies the calculations and allows managers to easily calculate breakeven points and evaluate different pricing and cost strategies.

A Limiting Assumption in CVP Analysis Is That