(CVP assumptions; writing) You were talking to your roommate one day about CVP analysis and the approaches that are used to calculate the break even point. You also described the assumptions that underlie this type of analysis.
Your roommate proclaimed, “Wow, you people in accounting are pretty simple. Do you realize how unrealistic it is to assume that, no matter how many units you sell, you will realize the same price per unit? And, I’ve never heard any serious person suggest that costs are linear. How can you possibly state that assumption with a straight face? In your world, profit maximization is simple . . . just produce the maximum amount possible.”
Provide a written justification of the assumptions accountants make in conducting CVP analysis that will satisfy your critical economist roommate.