Castillo Wood Products (CWP) manufactures disposable chopsticks for the restaurant industry at its highly automated production facility in China. The main raw material used to produce the chopsticks is wood that is purchased in bulk from suppliers in the United States. In September 2007, the company signed a contract to buy wood from a U.S. supplier for the coming two years. The contract calls for CWP to pay the supplier in dollars, although all other costs CWP incurs are paid for in Chinese Renminbi (¥). A summary of the production costs for a box of 1,000 sets of chopsticks, based on the expected production level, follows:

The exchange rate between the yen and the dollar was ¥100 5 $13.24 in September 2007 when the contract was signed. By September 2009, the exchange rate had changed to ¥100 5 $14.65. (Exchange rates are rounded to the nearest cent.)
Required
a. CVP analysis is based on several assumptions. Explain which of these assumptions would be violated as a result of CWP having to pay for one of its raw materials in dollars while its other costs and revenues are priced in yen.
b. What effect, if any, would the change in the exchange rate have on CWP€™s variable cost per unit for September 2007 versus September 2009?
c. What effect, if any, would the change in the exchange rate have on CWP€™s contribution margin per unit for September 2007 versus September 2009?
d. What effect, if any, would the change in the exchange rate have on CWP€™s fixed cost per unit for September 2007 versus September 2009?

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Variable costs: Wood All other variable costs ¥6,000* 600 Fixed costs: 5,400 *Based on the exchange rate at the time the contract with the U.S. supplier was signed. The cost of wood in dollars was $50 as of January 2007.