CVP Analysis is a powerful tool managers use; as it helps them in understanding the interdependency or relationship between cost, volume and profit in an organization mainly by focusing on interaction between elements such as

a: Product Price b: Level or volume of activity c: Per unit variable cost d: Total fixed costs e: Mix of products sold.

Assumptions:
The cost volume profit analysis assumptions suggest that the selling price does not change and remains constant as the volume changes. As costs are liner as a result of which they can be accurately divided into variable and fixed element. The fixed element remains constant in total over the relevant range and the variable element is constant per unit. On the other hand when considering multi-product companies, the sales mix is constant.

Limitations of CVP Analysis
It is limited in the amount of information it can provide in a multi-product operations. Multi-product businesses, such as restaurants, can have a difficult time with CVP analysis because menu items, for instance, are likely to have many variable cost ratios. This makes the challenge of CVP analysis all the more difficult because it must be done for each specific product.

As it is a short run, marginal analysis therefore 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 variable and fixed costs but in the long run all costs are variable.

Actual future volumes, revenues, and costs are unknown.
The analysis is done by business managers who use this approach based on a single