Limitations of CVP Analysis

Limitations of CVP Analysis

1. .The limitations of the CVP analysis can be based with the assumption of the cvp analysis .CVP Analysis can be used to access the cost behaviour drived by the changes in volumne and it is based of some underlying assumptions .But in real business scenerio the cost behaiour is effected by some other more no: of factors such as

   • Change in the Unit prices of the materials used
   • Wars
   • Efficiency
   • Change in the production technology
   • Some other misc factors in the business environment
   • Assumtions of CVp analysis
     •  Operations within a relevant range
     • Fixed cost remains constant
     • Variable Cost per unit remains constant
     • Sales mix remains Constant
     • Unit price remains constant
     • Efficiency and productivity remains constant
     • Only a single driver for the Cost and Revenues AKA Volumne of production
     • All what is produces equals all what is sold .so it is bliindly assumed that there will be no op stock or Closing stock of inventory