All of these are assumptions underpinning CVP analysis, except:Group of answer choicescost behaviour is assumed to be linear.costs can be readily classified as fixed or variable.for multi-product entities it is assumed the sales mix remains constant.costs can be divided into direct materials, direct labour and overhead.
Question
All of these are assumptions underpinning CVP analysis, except:Group of answer choicescost behaviour is assumed to be linear.costs can be readily classified as fixed or variable.for multi-product entities it is assumed the sales mix remains constant.costs can be divided into direct materials, direct labour and overhead.
Solution
The statement that does not underpin CVP (Cost-Volume-Profit) analysis is: "costs can be divided into direct materials, direct labour and overhead."
CVP analysis is primarily concerned with how selling prices, sales volume, variable costs, fixed costs, and the mix of products sold affects a company's profit. While it's true that costs can be divided into direct materials, direct labour, and overhead, this classification is more relevant to cost accounting and product costing, not specifically to CVP analysis. CVP analysis mainly focuses on the behavior of total costs, total revenue and profit as changes occur in the output level, selling price and variable costs per unit or the fixed costs.
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