Assumptions Underlying Cost-Volume- Analysis:

While performing cost-volume analysis, following assumptions are taken:

1. Fixed costs remain constant with different volumes of product sold in the range of volumes selected for the analysis.

2. Sales price per unit is constant and does not vary with the amount of product.

3. Percentage of variable cost in sales revenue is constant.

4. For a manufacturing firm, the number of units generated equals the number of units sold.

Generally these assumptions are made in order to simplify the break even analysis.