Unformatted text preview: of the effects of changes of costs and
volume on a company’s profits Considers the interrelationships among these five components: 1.
22-6 Volume or Level of activity
Unit selling prices
Variable Cost per unit
Total fixed costs Sales mix Cost-Volume-Profit Assumptions
Assumptions Underlying CVP
Analysis: Behavior of both costs and revenues is linear throughout the relevant range of the activity All costs can be classified as either Variable or fixed with reasonable accuracy
Changes in activity are the only factors that affect costs
All units produced are sold.
All units When more than one type of product is sold, the sales mix will
remain constant (sales mix complicates CVP analysis because different (sales mix complicates CVP analysis because different products will have different cost relationships.) Chapter
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- Spring '14