Which of the following is not an underlying assumption of cost volume profit analysis?

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journal article

Some Observations on the Break-Even Chart

The Accounting Review

Vol. 33, No. 4 (Oct., 1958)

, pp. 573-580 (8 pages)

Published By: American Accounting Association

//www.jstor.org/stable/241094

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Journal Information

The Accounting Review is the premier journal for publishing articles reporting the results of accounting research and explaining and illustrating related research methodology. The scope of acceptable articles embraces any research methodology and any accounting-related subject. The primary criterion for publication in The Accounting Review is the significance of the contribution an article makes to the literature.

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The American Accounting Association is the world's largest association of accounting and business educators, researchers, and interested practitioners. A worldwide organization, the AAA promotes education, research, service, and interaction between education and practice. Formed in 1916 as the American Association of University Instructors in Accounting, the association began publishing the first of its ten journals, The Accounting Review, in 1925. Ten years later, in 1935, the association changed its name to become the American Accounting Association. The AAA now extends far beyond accounting, with 14 Sections addressing such issues as Information Systems, Artificial Intelligence/Expert Systems, Public Interest, Auditing, taxation (the American Taxation Association is a Section of the AAA), International Accounting, and Teaching and Curriculum. About 30% of AAA members live and work outside the United States.

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CPV analysis is a powerful tool that helps managers understands the relationships of cost volume and profit. Cost volume profit (CVP) analysis is the relationship among cost, volume, and profit when output increases units cost of production decrease vice versa. It deals with how operating profit is affected by changes in variable costs, fixed costs, selling price per unit and the sales mix of two or more different products.

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.
  • Costs are linear and can be accurately divided into variable and fixed elements. The variable element is constant per unit, and the fixed element is constant in total over the relevant range.
  • In multi-product companies, the sales mix is constant.
  • In manufacturing companies, inventories do not change. The number of units produced equals the number of units sold.

While some of these assertions may be violated in practice, the violations are usually not serious enough to call into question the basic validity of CVP analysis. For example, in most multi-product companies, the sales mix is constant enough so that the results of CVP analysts are reasonably valid./a

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    Which is not an underlying assumption of cost volume profit analysis?

    Answer and Explanation: CVP analysis makes no assumptions related to beginning inventory and ending inventory. Since CVP is applied when using the variable costing model the change in inventory is not factored into the financials and thus is not an underlying assumption. The other options are assumptions.

    Which of the following is an underlying assumption of cost volume profit analysis?

    The assumptions underlying CVP analysis are: The behavior of both costs and revenues is linear throughout the relevant range of activity. (This assumption precludes the concept of volume discounts on either purchased materials or sales.) Costs can be classified accurately as either fixed or variable.

    What are the 4 assumptions of CVP analysis?

    The main assumptions that accountants make when using cvp analysis are that fixed costs will not change within the relevant range of activity, all costs can be classified into fixed and variable, the selling price per unit will stay constant, and fixed costs remain constant.

    Which of the following are assumptions of cost volume profit?

    The reliability of CVP lies in the assumptions it makes, including that the sales price and the fixed and variable cost per unit are constant. The costs are fixed within a specified production level. All units produced are assumed to be sold, and all fixed costs must be stable.

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