The CVP and break-even analysis are supported by a range of important assumptions. Which of the following is not an assumption of the CVP:

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BlackTom AI · Accepted Answer

The question asks which option is NOT an assumption of CVP (cost-volume-profit) analysis. We will evaluate each choice in context of CVP assumptions before identifying which is not an assumption.

Option a: "The cost behaviour is linear." In CVP, costs are typically assumed to behave in a linear, or proportional, manner within the relevant range. This means total variable costs change in direct proportion to volume, and total fixed costs remain constant. Therefore, this statement aligns with CVP assumptions and is considered true within CVP framework.

Option b: "The unit price and cost of materials can change over the time and within the relevant range." CVP assumes selling price, variable cost per unit, and fixed costs remain constant within the relevant range for a given analysis period. If unit price or material costs can vary over time or within the range, that violates the core CVP assumption of price and cost stability in the relevant range. Hence this statement describes a condition that is not an assumption of CVP, making it the correct (not-true) option.

Option c: "For the business produce more than one products, the sales mix between the products is constant." In many CVP analyses with multiple products, a constant sales mix is a standard assumption to maintain a straightforward weighted-average contribution margin. When the mix is constant, CVP results remain valid without complex modeling of changing proportions. Thus this is an acceptable CVP assumption.

Option d: "Fixed costs are constant within the relevant range." This is a fundamental CVP assumption: fixed costs do not change with output level within the relevant range. If fixed costs varied, CVP break-even calculations would be unreliable, so this statement correctly reflects a CVP assumption.

In summary, each option was weighed against the standard CVP framework. The only statement that conflicts with the standard CVP assumption of stability in price and costs within the relevant range is option b, which asserts that unit price and material costs can change. The remaining options describe conditions that align with CVP assumptions, either through linear cost behavior, constant sales mix within the relevant range, or fixed costs staying flat within the relevant range.

MCD2150 - T3 - 2025 Week 10 Workshop 1 Quiz

The CVP and break-even analysis are supported by a range of important assumptions. Which of the following is not an assumption of the CVP:

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Similar Questions

Under the assumptions used in cost-volume-profit analysis, as the activity increases:

You sell a pizza for $20 and it costs you $15 to make it. If your fixed costs are $80,000 and you aim to make a net income of $4’500 this month, how much must your dollar sales be? Assume your tax rate is 30%.

You sell a pizza for $20 and it costs you $15 to make it. If your fixed costs are $80,000 and you aim to make a net income of $4’500 this month, how much must your dollar sales be? Assume your tax rate is 30%.

You sell a pizza for $20 and it costs you $15 to make it. If your fixed costs are $80,000 and you aim to make a net income of $4’500 this month, how much must your dollar sales be? Assume your tax rate is 30%.

Which of the following scenarios would make CVP analysis LESS reliable for management decision-making?

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