Question

Cost-volume-profit analysis is based on necessary assumptions. Which of the following is not one of these assumptions? Select one:
a. Costs can be classified as variable or fixed.
b. Relevant range includes all possible levels of activity that a company might experience.
c. Sales price and variable costs per unit of output remain constant as volume changes.
d. A constant sales mix in a multiproduct company.
e. Total fixed costs are held constant.

Answer 1

Answer:

b. Relevant range includes all possible levels of activity that a company might experience.

Explanation:

In the cost-volume profit analysis, there are following assumptions which are described below:

1. There are two types of cost i.e variable cost and the fixed cost.

2. The sale mix remains same in case of multi product company

3. The volume of sales equals to volume of production

4. The cost is linear over the appropriate range i.e variable cost per unit and the fixed cost which remains same plus the selling price is also constant.