CVP assumption

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Cost Volume Profit Analysis:
Its Assumptions and Their Pitfalls
By Duncan Williamson Introduction The importance of identifying and criticising the underlying assumptions of cost volume profit analysis (CVP analysis) rests on the practical application of it: anyone who has ever tried (or anyone who may wish) to apply CVP analysis in reality, whilst trying to apply the substance of CVP theory will have found severe difficulties. These notes will help you solve those problems.
Rendesia e identifikimit dhe kriticizmit te shtreses se supozimeve te Analizes Kosto Vellim Fitimit (CVP analysis) qendron ne aplikimin praktik te saj.Cdo kush qe ka provuar t’I aplikoj ne realitet analizat e CVP ka zbuluar veshtiresi te medha.Ne kete
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It should be remembered that this graph refers to the whole business and, as we have already agreed, a reasonably large business is complex: consequently, although a statistical analysis can be carried out, its results will not always be as simple to interpret as the assumptions on which CVP analysis, and the example surrounding diagram one, would have us believe. Imagine the problems which must be faced by the analyst trying to cope with the kind of cost portrayed in diagram five: no longer a straight line at all; and such cost profiles are likely to be the normal: as opposed to straight lines, that is. More than all of this, though: it is frequently the case that even the people working in an organisation will have little or no idea a) a) of their fixed/variable cost split; and
b) b) b) how to split their total costs into their fixed and variable components if asked! It is these two aspects that often cause management accountants to assume linearity and/or spend many hours analysing total costs. Assessing the fixed and variable cost split can be fraught with difficulties and can be time consuming. 2 Fixed costs remain fixed even over a wide range of activity. Another simplifying assumption which
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