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Assumptions of CVP
This chapter has given information on how to apply CVP for the business analysis. Most of this analysis is keyed to the model of how profitability is impacted by alteration in the business volume. Like most of the models, there are number of inherent assumptions. Violating the suppose has the potential to undermine the conclusions of the model. Some of these assumptions have been touched in the whole chapter:
1. Costs can be segregated into the set and the variable portions
2. The linearity of costs is preserved over the relevant range (such as variable cost is constant per unit, and fixed cost is constant in total.
3. Revenues are stable per unit and multiple-product firms meet the expected product mix ratios
One extra assumption is that inventory levels are fairly constant, with the number of units produced equalling the number of units sold. If inventory levels vary, some of the variable and set product costs might flow into or out of inventory, with the variety of potential impacts on the profitability.
costing for materials and control
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cost classifications and examples
A retailer knows the annual demand for one of its product is 100,000 units, the ordering costs are £25 per order and the average carrying cost per unit is 35 pence. You are require
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