Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

What are the CVP assumptions?

Short Answer

Expert verified

Answer

When the volume of a product changes, the price per unit does not change.

Step by step solution

01

CVP assumptions

CVP analysis assumes the following:

  1. The price per unit does not change as volume changes.
  2. Managers can classify each cost as variable, fixed, or mixed.
  3. The only factor that affects total costs is a change in volume, which increases or decreases total variable and mixed costs.
  4. Total fixed costs do not change.
  5. There are no changes in inventory levels.
02

Limitation of assumptions

The above assumptions do not meet all business conditions and may not be relevant for the businesses.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

What is the relevant range?

Using the high-low method

Mark owns a machine shop. In reviewing the shopโ€™s utility bills for the past 12 months, he found that the highest bill of 2,600occurredinAugustwhenthemachinesworked1,200machinehours.Thelowestutilitybillof2,300 occurred in December when the machines worked 600 machine hours.

Requirements

1. Use the high-low method to calculate the variable cost per machine hour and the total fixed utility cost.

2. Show the equation for determining the total utility cost for the machine shop.

3. If Mark anticipates using 800 machine hours in January, predict the shopโ€™s total utility bill using the equation from Requirement 2.

Determine how each change effects the elements of the cost-volume-profit graph by placing an X in the appropriate column(s).


EFFECT

Sales Line
Fixed Cost Line
Total cost line
Breakeven point

Change

Slope Increases

Slope decreases

Shifts up

Shifts Down

Slope Increases

Slope Decreases

Increases

Decreases

Sales price per unit Increases

Sales price per unit Decreases

Variable cost per unit Increases

Variable cost per unit decreases

Total fixed cost increases

Total fixed cost decreases

Identifying variable, fixed, and mixed costs

Philadelphia Acoustics builds innovative speakers for music and home theater systems. Identify each cost as variable (V), fixed (F), or mixed (M), relative to number of speakers produced and sold.

1. Units of production depreciation on routers used to cut wood enclosures.

2. Wood for speaker enclosures.

3. Patents on crossover relays.

4. Total compensation to salesperson who receives a salary plus a commission based on meeting sales goals.

5. Crossover relays.

6. Straight-line depreciation on manufacturing plant.

7. Grill cloth.

8. Insurance on the corporate office.

9. Glue.

10. Quality inspectorโ€™s salary.

What effect does an increase in sales price have on contribution margin? An increase in fixed costs? An increase in variable costs?

See all solutions

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free