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Managerial Accounting – 14th Edition Garrison Noreen Brewer*P5-27

A CVP graph, as illistrated on the next page, is a useful technique for showing relationships among an

organizations costs, volumns, 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 actions will cause the line to:

Remain unchanged

Shift upward

Shift downward

Have a steeper slope

Have a flatter slope

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.

a. The unit selling price is decreased from $30 to $27

b. THe per unit variable costs are increased from $12 to $15

c. The total fixed costs are reduced by $40,000

d. Five thousand fewer units are sold during the period than were budgeted.

e. Due to purchaing a robot to perform a task that was previously done by workers, fixed costs are

increased by $25,000 per perios, and variable costs are reduced by $8 per unit

f. As a result of a decrease in the cost of materials, both unit variable costs and the sellign price are

decreased by $3.

g. Advertising costs are increased by $50,000 per period, resulting in a 10% increase in the number of

units sold.

h. Due to paying salespersons a commission rather than a flat salary, fixed costs are reduced by $21,000

per period, and unit variable costs are increased by $6.

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