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Q20-13RQ

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Horngren'S Financial And Managerial Accounting
Found in: Page 1119

Short Answer

What are the CVP assumptions?

Answer

When the volume of a product changes, the price per unit does not change.

See the step by step solution

Step by Step Solution

Step 1: CVP assumptions

CVP analysis assumes the following:

  1. The price per unit does not change as volume changes.
  2. Managers can classify each cost as variable, fixed, or mixed.
  3. The only factor that affects total costs is a change in volume, which increases or decreases total variable and mixed costs.
  4. Total fixed costs do not change.
  5. There are no changes in inventory levels.

Step 2: Limitation of assumptions

The above assumptions do not meet all business conditions and may not be relevant for the businesses.

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