What are the major assumptions of CVP analysis?
1 . All revenue and variable cost behavior patterns are constant per unit and linear within the relevant range.
2 . Total contribution margin (total revenue divided by total variable cost) is linear within the relevant range and increases proportionally with output.
3 . A constant income tax rate.
4 . Total fixed cost is constant within the relevant range. This assumption, in part, indicates that no capacity additions will be made during the period under consideration.
5 . Mixed costs can be accurately separated into their fixed and variable elements.
6 . Sales and production are equal; thus, there is no material fluctuation in inventory levels. This assumption is necessary because fixed cost can be allocated to inventory at a different rate each year. Thus, variable costing information must be available. Because CVP and variable costing both focus on cost behavior, they are distinctly compatible with one another.
7 . In a multi-product firm, the sales mix remains constant. This assumption is necessary so that a weighted average contribution margin can be computed.
8 . Labor productivity, production technology, and market conditions will not change. If any of these changes were to occur, costs would change correspondingly, and selling prices might change
You might also like to view...
When a dividend is paid in cash, it is known as a
a. liquidating dividend. b. dividend payable. c. cash dividend. d. property dividend.
Which of the following plans would most likely include directions for implementing and addressing daily challenges and opportunities in product features, promotion, merchandising, pricing, sales channels, and service areas?
A) the tactical marketing plan B) the target marketing plan C) the deployment plan D) the product-launch plan E) the product-development plan
The U.S. Courts of Appeals has exclusive jurisdiction to enforce, set aside, or modify orders of the Federal Trade Commission
Indicate whether the statement is true or false
Nadler and Tushman (1977) presented system functioning, group behavior, intergroup relations, and individual behavior and effect as categories for ______.
A. studies B. T groups C. categories of outputs D. none of these