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**Cost, Volume and Profit Assumptions- things you must know **

**What is Cost, volume and profit analysis?**

Cost volume and profit analysis help in determining how alterations in the volume and the costs affect the operating income and the net income of the company.CVP analysis facilitates business to plan and make a decision. It offers information about the alterations in the profit and the costs due to the change in the quantity.

**Assumptions of Cost Volume and Profit**

This analysis is central to following assumptions-

**Costs are of two types variable and fixed**

All costs in the business divide into two parts fixed and variable. Variable cost per element is constant. Overall variable costs transform directly with the activity.

On the other hand, aggregate fixed costs are constant irrespective of the level of activities.

**Linear association within an applicable range**

Revenue and costs association are linear within an applicable range of activities and for a certain period. Here, we assume that individual is working within applicable range for which behaviour of variable and fixed costs are relevant.

**Level of stock does not differ from time to time**

Here we assume that all the units manufactured are sold during the time. Therefore, there is no such change in the commencement and concluding stock levels.

**Volume is the single factor that affects variable costs**

Level of activity increases the TVC increases directly along with the change in the volume. It is very important to know that quantity is single factor that affects the TVCs.

**Selling price of the commodities is stable**

The market conditions and the selling price are stable. In addition, if the firm manufactures and sells more than a product, the sale mix assumes to be stable.

Despite the shortcomings, the CVP analysis is a functional tool in the decision-making. The shortcomings ease the progression of analysing effect of alterations in the level of activities.

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