CVP assumes that inventory levels will not change.

Question

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CVP (Cost-Volume-Profit) analysis assumes that inventory levels will remain constant throughout the analysis period. This assumption is made to simplify the analysis and to focus on the impact of changes in sales volume, selling price, variable costs, and fixed costs on a company's profitability. However, in reality, inventory levels may fluctuate depending on various factors such as demand, production capacity, lead time, ordering cost, and carrying cost.

CVP Assumes That Inventory Levels Will Not Change