Limitations of Cost-Volume-Profit (CVP) Analysis:
Cost volume profit (CVP) is a short run,
marginal analysis: it assumes that unit variable costs and unit
revenues are constant, which is appropriate for small deviations from
current production and sales, and assumes a neat division between fixed
costs and variable costs, though in the long run all costs are variable. For
longer-term analysis that considers the entire life-cycle of a product, one
therefore often prefers
activity-based costing or throughput accounting. |
