Chapter 6, Problem 31P

Interpretive Questions on the CVP Graph L06−2, L06−5
A CVP graph such as the cue shown below is a useful technique for showing relationships among an organizations costs, volume, and profits.

Required:
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 expenses 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 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.