Limitations of CVP Analysis

Following are the main limitations of CVP analysis:

1. This analysis presumes the ability to predict the cost and sales at different levels of activity with certainty. In practice, these variables are uncertain and requires the incorporation of the uncertainty effect into the information.

2. A series of break even chart is necessary when alternative pricing policies are under consideration. This differential price policy makes break even analysis a difficult exercise.

3. It assumes that product mix will be constant, whereas, the sales mix will continually change owing to the change of demand. A change in mix may significantly change the result.

4. It assumes that costs are affected only by the output, but in real life situation other factors affecting cost such as economic factors, political factors, technological methods, efficiency, cost control etc., are not considered.

5. This analysis disregards that selling price is not constant at all levels of sales. A high level of sales may be obtained by offering substantial discounts, depending on the competition in the market.

6. This analysis presumes that fixed cost remains constant over a given volume. It is true that fixed costs are fixed only in respect of a given capacity but each fixed cost has its own capacity. This factor is completely disregarded in the analysis.

7. Another assumption is that there is no stock or if stock exists then there is no change in the stock level and profit depends on only sales volume. But in practice, a change in stock level affects the profit.

Email based Accounting assignment help - homework help at Expertsmind

Are you searching Accounting expert for help with Limitations of CVP Analysis questions?  Limitations of CVP Analysis topic is not easier to learn without external help?  We at www.expertsmind.com offer finest service of Accounting assignment help and Accounting homework help. Live tutors are available for 24x7 hours helping students in their Limitations of CVP Analysis related problems. We provide step by step Limitations of CVP Analysis question's answers with 100% plagiarism free content. We prepare quality content and notes for Limitations of CVP Analysis topic under  Accounting theory and study material. These are avail for subscribed users and they can get advantages anytime.

Why Expertsmind for assignment help

1. Higher degree holder and experienced experts network
2. Punctuality and responsibility of work
3. Quality solution with 100% plagiarism free answers
4. Time on Delivery
5. Privacy of information and details
6. Excellence in solving Accounting questions in excels and word format.
7. Best tutoring assistance 24x7 hours