Cost-volume-profit analysis is based on certain general assumptions. Which of the following is not one of these assumptions?
A) Product prices will remain constant as volume varies within the relevant range.
B) Costs can be categorized as fixed, variable, or semivariable.
C) The efficiency and productivity of the production process and workers will change to reflect manufacturing advances.
D) Total fixed costs remain constant as activity changes.
E) Unit variable cost remains constant as activity changes.

Question

Quizplus · Accepted Answer

Cost-volume-profit (CVP) analysis assumes that the efficiency and productivity of the production process and workers remain constant, not that they will change to reflect manufacturing advances. This is because CVP analysis simplifies the real-world conditions to make predictions and planning easier, and does not account for improvements in efficiency or productivity within its basic assumptions.

Cost-Volume-Profit Analysis Is Based on Certain General Assumptions