A CVP graph such as the one shown below is a useful technique for showing relationships among 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 reduced by $5,000 per period.

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

Line 9: Remain unchanged.

Break-even point: Decrease.

a. The unit selling price is increased from $18 to $20.

b. Unit variable costs are decreased from $12 to $10.

c. Fixed costs are increased by $3,000 per period.

d. Two thousand more units arc sold during the period than were budgeted.

e. Due to paying salespersons a commission rather than a flat salary, fixed costs are reduced by $8,000 per period and unit variable costs arc increased by $3.

f. Due to an increase in the cost of materials, both unit variable costs and the selling price are increased by $2.

g. Advertising costs are increased by $10,000 per period, resulting in a 10% increase in the number of units sold.

h. Due to automating an operation previously done by workers, fixed costs are increased by $12,000 per period and unit variable costs are reduced by $4.

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8. 2. 7.