Which statement is an assumption of a cost-volume-profit analysis?
A) Revenue and costs behave in a linear manner.
B) More inventory is produced than is sold in the period.
C) Sales price and costs vary within the relevant range.
D) Sales price and costs cannot be accurately identified.

Question

Quizplus · Accepted Answer

A key assumption of cost-volume-profit analysis is that revenue and costs behave in a linear manner, meaning they change proportionately with changes in sales volume. This assumption allows for the use of a simple mathematical equation to calculate the break-even point and the level of sales needed to achieve a desired level of profit.

B is incorrect because producing more inventory than is sold is not relevant to cost-volume-profit analysis.

C is in line with the assumption mentioned in A.

D is incorrect because accurate identification of sales price and costs is necessary for cost-volume-profit analysis.

Which Statement Is an Assumption of a Cost-Volume-Profit Analysis