Cost-Volume-Profit assumptions

The main assumptions required in C-V-P analysis are:

1) The relationship holds merely within the appropriate range. The relevant range is a band of activity in which a specified cost behavior is stated.

2) The behavior of net cost and net revenue has consistently been determined and is lineal in the relevant range.

3) All costs can be splitted into fixed and variable such that mixed costs are decomposed into their fixed and their variable components.

4) Selling prices are constant hence we avoid quantity discounts.

5) Efficiency and production stay similar therefore we ignore the learning curve effect.

6) The prices of factors of production stay constant.

7) There are no limiting factors