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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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An important assumption of cost-volume-profit analysis is that

  1. a. both costs and revenues are linear functions.
  2. b. all cost and revenue relationships are analyzed within the relevant range.
  3. c. there is no change in inventories.
  4. d. the sales mix remains constant.
  5. e. All of these.

To determine

Identify a significant assumption of cost-volume profit analysis.

Explanation

CVP Analysis (CVP):

CVP analysis establishes the relation between cost, volume and profit of the company. It estimates the effect of changes in variable cost, fixed cost, volume of sales and price on the profit of the company.

a.

One of the important assumptions of CVP analysis is that revenue and cost functions are linear or on a straight line. This statement is correct but other statements are correct as well. So, option a is incorrect.

b.

Relationship between cost and price are assumed to be identified and constant within the relevant range after the range is determined. This statement is correct but other statements are correct as well...

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