Interpretive Questions on the CVP GraphA CVP graph, as illustrated on the next page. is a...

Interpretive Questions on the CVP Graph

A CVP graph, as illustrated on the next page. is a useful technique for showing relationships among an organization’s costs, volume, and profits

Required:

1. Identify the numbered component- in the CVP graph.

2. State the effect of each of the following action- on line 3 line 9 and the break-even point. For line 3 and line 9), state whether the action will cause the line to:

Remain unchanged.

Shift upward.

Shift downward.

Hare a steeper slope (i.e., rotate upward I.

Have a flatter slope (i.e., rotate downward).

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:

Remain unchanged.

Increase.

Decrease.

Probably change. but the direction is uncertain.

Treat each case independently.

x. Example.Fixed costs are increased by$20,000 each period

    Answer (see choices above):  Line 3: Shift upward.

                                                  Line 9: Remain unchanged.

                                                  Break-even point: Increase.

a. The unit selling price is decreased from $30 to $27.

b. The per unit variable costs are increased from $12 to $15 .

r. 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 purchasing a robot to perform a task that was previously done by workers fixed costs are increased by $25,000 per period 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 selling 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 sales persons a commission rather than a flat salary fixed costs are reduced by $21.000 per period and unit variable costs are increased by $6.