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27 January, 10:08

CVP analysis assumes all of the following except:Variable costs are linear through the relevant rangeRevenues are linear throughout the relevant rangeInventory levels will increaseA change in volume is the only factor that affect costs

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  1. 27 January, 10:28
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    Inventory levels will increase

    Explanation:

    CVP stands for cost volume profit analysis, under this analysis, there is basic assumption with respect to cost and revenue, that they are linear.

    That means with the increase in output or sales, there will be increase in costs associated as cost is linear, and also the revenue is linear as with increase or decrease in number of units sold, the revenue will also increase or decrease.

    But, it has an assumption that the inventory balance do not change, and inventory in hand do not show a linear equation as with the number of units produced or sold.

    Thus, "Inventory levels do not increase under CVP analysis".
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