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.
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