ACCA Applied Skills · Performance Management · Cost-volume-profit analysis (CVP)
Which of the following is a standard assumption of basic CVP analysis?
Basic CVP analysis assumes that fixed costs stay constant in total within the relevant range. It also assumes constant selling price and variable cost per unit, and that production equals sales, so no significant inventory changes occur.
- AFixed costs remain constant in total within the relevant rangeCorrect
- BVariable cost per unit falls as output increases
- CSelling price per unit falls as volume increases
- DInventory levels change significantly between periods
Explanation
Basic CVP assumes fixed costs are constant in total within the relevant range, variable cost and selling price per unit are constant, and production equals sales so inventory does not change. The other options contradict these assumptions.
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