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Which assumption is made when a cost volume profit analysis is prepared?
AEvery unit that is produced in the period is sold
BFixed cost per unit stays the same at all volumes
CVariable cost in total stays the same at all volumes
DSelling price per unit rises as the volume sold rises
Answer & Solution
Correct answer: A. Every unit that is produced in the period is sold
1. Cost volume profit analysis rests on three assumptions.
2. Every cost is classified as either fixed or variable, with nothing left unclassified.
3. Selling price per unit, variable cost per unit and total fixed cost are all held constant.
4. All units produced are sold, so no inventory movement disturbs the result.
5. Fixed cost per unit is precisely what does not stay constant, since it falls as volume rises.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 5.2 Cost Volume Profit Analysis (CVP)_
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