The assumptions on which cost-volume-profit analysis is based appear to be most valid for businesses:
A) over the short run.
B) over the long run.
C) over both the short run and the long run.
D) in periods of sustained profits.
E) in periods of increasing sales.

Question

Quizplus · Accepted Answer

Cost-volume-profit (CVP) analysis is most valid in the short run because it assumes that unit variable costs and unit revenues are constant, which is more likely to be true over shorter periods. Over the long run, these assumptions are less likely to hold due to changes in costs, prices, and the business environment.

The Assumptions on Which Cost-Volume-Profit Analysis Is Based Appear to Be