A CVP graph such as the one shown below is a useful technique for showing relationships among an organizations costs, volume, and profits.

A graph plots 2 on the horizontal axis and 1 on the vertical axis. It plots two lines labeled as 9 and 3. Line 9 starts on the origin and line 3 starts on the vertical axis. The gap between 9 and 3 are labeled as 7 in the bottom. The lines intersects at 6. The gap between 9 and 3 are labeled as 8 on the top. A horizontal line starts at the origin of line 3. The vertical gap between the x axis and the horizontal axis is 5. The gap between horizontal axis and line 3 is 4.

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.

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

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

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

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

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

f. Due to an increase in the cost of materials, both unit variable expenses 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 expenses are increased by $12,000 per period and unit variable expenses are reduced by $4.