Core Assumptions of CVP Analysis

Steps:

• Define CVP: Tool to analyze how changes in costs, volume, and sales affect profits.
• List key assumptions: Constant selling price per unit, constant variable cost per unit, fixed costs constant in total, production equals sales (no inventory change).
• Match options to assumptions: Check which describes a valid CVP condition.
• Confirm C aligns, while others contradict.

Why C is correct:

• CVP analysis assumes a constant selling price per unit (P in the formula Profit = (P - V) × Q - F) to predict break-even and profit linearly.

Why the others are wrong:

• A: Fixed costs per unit decrease as volume rises, so they do not stay the same.
• B: CVP assumes no change in inventory levels, as production equals sales.
• D: Variable costs per unit remain constant under CVP assumptions.

Final answer: C