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

Required:
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 action will cause the line to:
Remain unchanged.
Shift upward.
Shift downward.
Have a steeper slope (i.e., rotate upward).
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.
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 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 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.
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March 30, 2012

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