1. Assumptions behind Cost-Volume-Profit (CVP) Analysis:

1. Linear Costs and Revenues: It is assumed that both costs and revenues are linear over the relevant range. This means that variable costs remain constant per unit and fixed costs remain unchanged over the volume range.
2. Constant Selling Price: The selling price per unit is assumed to remain constant, regardless of the number of units sold.
3. Single Product or Constant Sales Mix: CVP analysis assumes that either a single product is being analyzed, or in the case of multiple products, the sales mix is constant.
4. All Costs Can be Divided into Fixed and Variable: It is assumed that all costs can be categorized as either fixed or variable, with no semi-variable costs.

2. Uses of Cost-Volume-Profit (CVP) Analysis:

1. Break-Even Analysis: CVP analysis is used to determine the break-even point, i.e., the level of sales at which total revenue equals total costs, and the business neither makes a profit nor incurs a loss.
2. Profit Planning: CVP analysis helps in profit planning by determining the level of sales required to achieve a specific profit target.