Question

The assumptions underlying CVP analysis include:

A) Costs can be classified accurately as either variable or fixed.
B) All units produced are sold.
C) 2 only
D) Both 1 and 2
E) 1 only
F) Neither 1 nor 2

Answer 1

The correct answer to the assumptions of CVP analysis is that costs can be classified as fixed or variable, and all units produced are sold, which corresponds to option D) Both 1 and 2.

Step-by-step explanation:

The question at hand pertains to the key assumptions underlying Cost-Volume-Profit (CVP) analysis in business. The assumptions are that costs can be sharply divided into variable and fixed categories, and that every unit produced is expected to be sold. The correct answer to the provided question is option D) Both 1 and 2.

Assumption 1 relates to the classification of fixed and variable costs, which are foundational for calculating the break-even point and understanding how changes in volume affect profitability. Assumption 2, concerning the sale of all units produced, speaks to avoiding issues with inventory that may complicate the analysis. Together, they simplify the business environment to focus on how price, volume, and costs influence profits. Option D