Company XYZ last year sold 40,000 units of a product whose contribution margin is $20.00. This year the company expects to sell only 25,000, despite reducing the unit price by $5.00 and keeping all other costs constant. The expected decrease in operating profit is:  a ) $275,000.00 b) $425,000.00 c) $325,000.00 d) $375,000.00

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Cost volume profit (CVP) analysis

CVP analysis is a cost-volume-profit technique of cost accounting that examines the influence of varying levels of expenses and volume on operating profit. Cost Volume Profit analysis determines the relationship between Cost, Sale Volume, sales price, and Profit. CVP analysis is also known as break-even analysis which helps the business organization, banks, and their management to determine and forecast how a change in total sales and cost affects the profit of the organization. CVP analysis helps in financial decision-making for the budget, expense, tax, market investment, and corporate finance and aims at measuring variations in cost and volume.