Invalid Assumption in CVP Analysis

Steps:

• Recall CVP assumptions: fixed costs constant in total, variable costs proportional to volume, single product or constant mix, all output sold.
• Compare choice A: matches no-inventory assumption.
• Compare choice B: matches single-product assumption.
• Compare choice C: contradicts fixed costs constancy.
• Compare choice D: matches proportionality of variable costs.

Why C is correct:

• CVP analysis assumes total fixed costs remain constant within the relevant range, as per the break-even formula (Break-even point = Fixed Costs / (Unit Selling Price - Unit Variable Cost)).

Why the others are wrong:

• A: CVP requires all units produced to be sold to avoid inventory distortions in volume-profit relationships.
• B: CVP simplifies by assuming one product or constant sales mix for clear analysis.
• D: CVP defines variable costs as changing directly with sales volume for linear projections.

Final answer: C