How does management manipulate factors which determine profits in order to achieve the objective of maximizing profits? For linear c-v-p analysis, we make the following assumptions. i) Linearity. We assume that the revenue, cost and hence profit functions are linear with respect to the level of activity i.e. (quantity produced and sold) For revenue function to be linear, price per unit must be constant e.g. there should be no quantity discounts. ii) iii) iv) v) vi) For cost function to be linear. -unit variable costs are constant e.g. there are no changes in direct material or direct labour costs. Fixed costs remain so All costs can be classified as either fixed or variable. In particular, there are no semi-variable costs. All units produced are sold i.e. inter-period inventory changes are negligible. The only factor which influences revenues, cost and hence profits is level of activity. There is no demand restrictions i.e. there are no constraints. All factors which influence profits are known with certainty in advance.