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Some Observations on the Break-Even ChartThe 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.
Publisher Information
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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The Accounting Review © 1958
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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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