These assumptions can be grouped under the following headings (Horngren, Foster and Datar, 2001, p:60):

• Expenses must be classified as fixed and variable.
• It must be assumed that total fixed expenses aren’t affected by the rise in the volume of activity and that variable expenses can change regarding the rise in the volume of activity. In other words, the cost function is assumed to be linear.
• Since the sales price is supposed to be fixed, the total revenue function is accepted to be linear.
• It is assumed that there will be no change in the product mix in case multiple products are sold.
• It is assumed that the efficiency of production factors are constant.
• There is a complete synchronization between sales and inventories.
• Tangible fixed assets are constant despite various production volumes.
• Risks and uncertain conditions are ignored.
• No extraordinary income or expenditure has emerged.
• The analysis method is accepted as accurate for the short-term. Thus, it is implementable.