Question
Which of the following are assumptions of cost-volume-profit analysis?
Multiple select question.
Fixed costs per unit stay the same within the relevant range.
In multi product companies, the sales mix is constant.
Costs are linear and can be accurately divided into variable and fixed elements.
Variable costs per unit increase over the relevant range of activity.
Multiple select question.
Fixed costs per unit stay the same within the relevant range.
In multi product companies, the sales mix is constant.
Costs are linear and can be accurately divided into variable and fixed elements.
Variable costs per unit increase over the relevant range of activity.
Answers
GPT-4o mini
The assumptions of cost-volume-profit (CVP) analysis typically include the following:
1. **Fixed costs per unit stay the same within the relevant range.** (This is true; fixed costs remain constant in total within the relevant range, though per unit fixed costs vary with the level of activity.)
2. **In multi-product companies, the sales mix is constant.** (This is true; CVP analysis assumes that the sales mix remains constant when multiple products are involved.)
3. **Costs are linear and can be accurately divided into variable and fixed elements.** (This is true; CVP analysis relies on the assumption that costs behave in a linear manner and can be classified as either variable or fixed.)
4. **Variable costs per unit increase over the relevant range of activity.** (This is false; CVP analysis assumes that variable costs per unit remain constant within the relevant range.)
Based on this analysis, the correct assumptions of cost-volume-profit analysis are:
- Fixed costs per unit stay the same within the relevant range.
- In multi product companies, the sales mix is constant.
- Costs are linear and can be accurately divided into variable and fixed elements.
1. **Fixed costs per unit stay the same within the relevant range.** (This is true; fixed costs remain constant in total within the relevant range, though per unit fixed costs vary with the level of activity.)
2. **In multi-product companies, the sales mix is constant.** (This is true; CVP analysis assumes that the sales mix remains constant when multiple products are involved.)
3. **Costs are linear and can be accurately divided into variable and fixed elements.** (This is true; CVP analysis relies on the assumption that costs behave in a linear manner and can be classified as either variable or fixed.)
4. **Variable costs per unit increase over the relevant range of activity.** (This is false; CVP analysis assumes that variable costs per unit remain constant within the relevant range.)
Based on this analysis, the correct assumptions of cost-volume-profit analysis are:
- Fixed costs per unit stay the same within the relevant range.
- In multi product companies, the sales mix is constant.
- Costs are linear and can be accurately divided into variable and fixed elements.