Assumptions

CVP assumes the following:

Constant sales price;
Constant variable cost per unit;
Constant total fixed cost;
Constant sales mix;
Units sold equal units produced.

These are simplifying, largely linearizing assumptions, which are often implicitly assumed in elementary discussions of costs and profits. In more advanced treatments and practice, costs and revenue are nonlinear and the analysis is more complicated, but the intuition afforded by linear CVP remains basic and useful.

One of the main Methods of calculating CVP is Profit volume ratio: which is (contribution /sales)*100 = this gives us profit volume ratio.

contribution stands for Sales minus variable costs.

Therefore it gives us the profit added per unit of variable costs.