Which of the following is an assumption of CVP analysis?
A) Total costs can be divided into a fixed component and a component that is variable with respect to the level of output.
B) When graphed, total costs curve upward.
C) The unit-selling price is variable as it is subject to demand and supply.
D) Total costs can be divided into inventoriable and period costs with respect to the level of output.

Question

Quizplus · Accepted Answer

CVP analysis assumes that total costs can be divided into a fixed component and a component that is variable with respect to the level of output. This assumption allows for the calculation of break-even point and other useful metrics in cost-volume-profit analysis. B is incorrect because total costs can curve downward or have a U-shape, depending on the shape of the variable cost curve. C is incorrect because CVP analysis assumes a constant unit-selling price. D is incorrect because CVP analysis does not differentiate between inventoriable and period costs.

Which of the Following Is an Assumption of CVP Analysis