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SSC Financial and Cost Accounting P-1 QUESTION #6157
Question 1

What are the limitations of CVP analysis?

  1. It assumes fixed costs will remain constant.
  2. It cannot be used if multiple products are produced in a constant mix.
  3. It ignores the possibility of semi-variable costs.
  • 1, 2 and 3
  • 1 and 2 only
  • 1 and 3 only✔️
  • 2 and 3 only
Correct Answer Explanation

Option C (1 and 3) is correct.

  • Statement 1 (True limitation): Fixed costs can change in steps in reality.
  • Statement 2 (False): CVP can be used with multiple products in a constant mix.
  • Statement 3 (True limitation): CVP ignores semi-variable costs, treating all costs as purely fixed or variable.