Throughout the chapter we have relied on certain assumptions that have simplified the application of cost-volume-profit analysis, In practice, however. some of these assumptions may not always hold true. These assumptions include
I. Sales price per unit is assumed to remain constant.
2. If more than one product is sold. the prr-portion of the various products sold (the sales mix) is assumed to remain constant.
3. Fixed costs (expenses) are assumed to remain constant at all levels of sales within a relevant range of activity. .
4. Variable costs (expenses) are assumed to remain constant as a percentage of sales revenue.
5. For manufacturing companies, the number of units produced is assumed to equal the number of units sold each period
Even if some of these assumptions are violated. cost-volume-profit analysis can still be a useful planning tool for management. As changes take place in selling prices. sales mix. expenses, and production levels, management should update and revise its analysis
Summary of Basic Cost-Volume-Profit Relationships
In this chapter, we have demonstrated a number of ratios and mathematical relationships that are useful in cost-volume-profit analysis. For your convenience. these relationships are summarized on the following page.