A CVP graph, as illustrated on the next page, is a useful technique for showing relationships among an organizations costs, volumes, and profits.
1. Identify the numbered components in the CVP graph.
2. State the effect of each of the following actions on line 3, line 9, and the break-even point. For line 3 and line 9, state whether the actions will cause the line to:
Have a steeper slope
Have a flatter slope
Shift upward and have a steeper slope
Shift upward and have a flatter slope
Shift downward and have a steeper slope
Shift downward and have a flatter slope
In the case of the break-even point, state whether the action will cause the break-even point to:
Probably change, but the direction is uncertain
Treat each case independently.
a. The unit selling price is decreased from $30 to $27
b. THe per unit variable costs are increased from $12 to $15
c. The total fixed costs are reduced by $40,000
d. Five thousand fewer units are sold during the period than were budgeted.
e. Due to purchaing a robot to perform a task that was previously done by workers, fixed costs are increased by $25,000 per perios, and variable costs are reduced by $8 per unit
f. As a result of a decrease in the cost of materials, both unit variable costs and the sellign price are decreased by $3.
g. Advertising costs are increased by $50,000 per period, resulting in a 10% increase in the number of units sold.
h. Due to paying salespersons a commission rather than a flat salary, fixed costs are reduced by $21,000 per period, and unit variable costs are increased by $6.