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Can you explain me this assumption of CVP?
“Company will hold no stocks which means production is equal to sales”.
I have noticed that assumptions are put because in normal conditions that will fail to achieve.
What is meant by this assumption and why it is a limitation for CVP?
Nowhere do I state that as an assumption!!
What we are effectively assuming is that inventory levels do not change and therefore the production is the same as the sales. Therefore the total contribution varies directly with the level of sales.