1.
Which of the following is not an assumption underlying cost-volume-profit analysis? a. Product
sales mix will not change during the period. b. The breakeven point will be reached and
surpassed during the period. c. Cost behavior can be determined accurately. d. Productivity is
constant within the relevant range.
Solution
Point b that the BEP will be reached and surpassed during the period is not an assumption for
CVP analysis. This is a calculation tool to derive the Break even sales required to recover the
fixed expenses of a particular period but it never assumes that BEP will be reached and surpassed
in the actal scenario. If the BEP is not reached , the net income of the company will be negative
but that cannot stop the calculation of BEP and the analysis of effect of volume over profit as
long as the linear relation of costs are intact , the sales mix is constant , the costs behaviour can
be determined and productivity is constant.