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Assumptions Underlying CVP Analysis –. For any cost-volume-profit analysis to be valid, the following important assumptions must be reasonably satisfied within the relevant range. Selling price is constant; the price of the product or service will not change as volume changes. CVP helps one assess business profitability and growth. It requires an awareness of cost behavior. Broadly defined, costs may be variable or fixed. Variable costs increase in a linear fashion as production rises, while fixed costs are unaffected.

(2) Behavior or costs will be linear within the relevant range Cost-volume-profit (CVP) analysis assumes that total fixed costs do not change in the short-run within the relevant range. Cost and revenue relationships are linear within a relevant range of activity and over a specified period of time. Perhaps the greatest danger lies in relying on simple CVP analysis when a manager is contemplating a large change in volume that lies outside of the relevant range. For example, a manager might contemplate increasing the level of sales far beyond what the company has ever experienced before.

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Selling price is constant; the price of the product or service will not change as volume changes. CVP helps one assess business profitability and growth. It requires an awareness of cost behavior.

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Selling price, variable cost per unit, and total fixed costs (within a relevant range and time period) are known and constant. 6. While the breakeven point is often of interest to managers, CVP analysis considers a broader question: What amount of sales in units or Why is identification of a relevant range important in CVP analysis? Select one: a.

Relevant range is a level of volume or activity within which a company is expected to operate. All the budgeting and costing exercise are conducted with relevant range as the fundamental assumption. In other words, it is the underlying assumption when we comment certain costs to be fixed or variable. The relevant range refers to a specific activity level that is bounded by a minimum and maximum amount.
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Low CVP may indicate hypovolaemia 2012-09-07 Perhaps the greatest danger lies in relying on simple CVP analysis when a manager is contemplating a large change in volume that lies outside of the relevant range. For example, a manager might contemplate increasing the level of sales far beyond what the company has ever experienced before. The relevant range is represented by the high and low output points that have been previously reached with past production. CVP analysis is best viewed within the relevant range, that is, within our previous actual experience. Outside of that range, costs may vary in a nonlinear manner.

between sales of 10,000 units and 80,000 units) within which the selling price and variable cost per unit remain constant. CVP analysis does not apply outside of the boundaries of this sales volume range CVP analysis does not assume that. A. selling prices remain constant B. there is a single revenue and cost driver C. total fixed costs vary inversely with the output level D. total costs are linear within the relevant range Answer: Option C How is the relevant range of activity related to CVP analysis? A) Managers are normally uncertain about the relevant range B) In CVP analysis, operations are assumed to be within the relevant range C) The relevant range is irrelevant to CVP analysis D) The relevant range affects costs but not revenues CVP Analysis with Multiple Products Curl provides us with the following information: CVP Analysis with Multiple Products Weighted-average unit contribution margin CVP Analysis with Multiple Products Break-even point CVP Analysis with Multiple Products Break-even point Assumptions Underlying CVP Analysis Selling price is constant throughout the entire relevant range.
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Bobadilla 40.An assumption in a CVP analysis is that a change in costs is caused by a change in A. unit direct material cost C. sales commission B. the number of units D. efficiency due to per unit Bobadilla learning curve in CVP analysis, the relevant range of operations is the _____ operating range for a business normal capacity conventional CVP analysis requires management to classify all costs as either ___ or ___ with respect to production or sales volume. This break-even point can be an initial examination that precedes more detailed CVP analysis. CVP analysis employs the same basic assumptions as in breakeven analysis. The assumptions underlying CVP analysis are: The behavior of both costs and revenues are linear throughout the relevant range of activity. Answer the following CVP Analysis. Present your answers and supporting solutions in good form.