APPLY THE CONCEPTS: Use the CVP graph to analyze the effects of changes in price and costs Graph the following on your own paper. At the original position, the break-even point in sales dollars is $24,000 at 500 units. The fixed costs are $8,000. Assume the slope of the sales line is equal to the selling price. When the two points of the sales line are at the origin and the break-even point, you see that the slope of the line is $48, which means that the selling price is $ When the two points of the total costs line are at the origin and the break-even point, you see that the slope of the line is $32.00, which means that the variable cost per unit is s Leave the break-even point (x) at its original position. Use it as a reference point to answer the following questions. Analyze the scenarios by sliding the points on the lines to get the slope desired. Recall that the new break-even point for each scenario exists where the sales and total costs lines intersect. Compare it to the original break-even point (x). (You may want to put the lines back to their original position for each scenario.) Each scenario should be considered independently. 1. The company sells a fixed asset and reduces fixed costs by $2,000. Variable costs remain the same, which means that the slope does not change. This will cause the break-even point to move to the left v, which means that break- even point in sales dollars decreases 2. A new supplier can provide a higher-quality product, but direct materials will increase by $4.00 per unit. If the new supplier is used, the slope of the total costs line will be $ and the break-even point in sales dollars increases 3. Market research shows that a price decrease will increase the number of units sold. A price decrease will cause the slope of the sales line to decrease -V. But internal analysis shows that this price decrease will cause the break-even point in sales to shift to the right - v, which means that more -v units will need to be sold to break even.
APPLY THE CONCEPTS: Use the CVP graph to analyze the effects of changes in price and costs Graph the following on your own paper. At the original position, the break-even point in sales dollars is $24,000 at 500 units. The fixed costs are $8,000. Assume the slope of the sales line is equal to the selling price. When the two points of the sales line are at the origin and the break-even point, you see that the slope of the line is $48, which means that the selling price is $ When the two points of the total costs line are at the origin and the break-even point, you see that the slope of the line is $32.00, which means that the variable cost per unit is s Leave the break-even point (x) at its original position. Use it as a reference point to answer the following questions. Analyze the scenarios by sliding the points on the lines to get the slope desired. Recall that the new break-even point for each scenario exists where the sales and total costs lines intersect. Compare it to the original break-even point (x). (You may want to put the lines back to their original position for each scenario.) Each scenario should be considered independently. 1. The company sells a fixed asset and reduces fixed costs by $2,000. Variable costs remain the same, which means that the slope does not change. This will cause the break-even point to move to the left v, which means that break- even point in sales dollars decreases 2. A new supplier can provide a higher-quality product, but direct materials will increase by $4.00 per unit. If the new supplier is used, the slope of the total costs line will be $ and the break-even point in sales dollars increases 3. Market research shows that a price decrease will increase the number of units sold. A price decrease will cause the slope of the sales line to decrease -V. But internal analysis shows that this price decrease will cause the break-even point in sales to shift to the right - v, which means that more -v units will need to be sold to break even.
Chapter3: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 7EB: Delta Co. sells a product for $150 per unit. The variable cost per unit is $90 and fixed costs are...
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Concept explainers
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Question
Transcribed Image Text:APPLY THE CONCEPTS: Use the CVP graph to analyze the effects of changes in price and costs
Graph the following on your own paper. At the original position, the break-even point in sales dollars is $24,000 at 500 units. The fixed costs are $8,000.
Assume the slope of the sales line is equal to the selling price. When the two points of the sales line are at the origin and the break-even point, you see that the slope of the line is $48, which means that the selling price is $
When the two points of the total costs line are at the origin and the break-even point, you see that the slope of the line is $32.00, which means that the variable cost per unit is $
Leave the break-even point (x) at its original position. Use it as a reference point to answer the following questions. Analyze the scenarios by sliding the points on the lines to get the slope desired. Recall that the new break-even point for each
scenario exists where the sales and total costs lines intersect. Compare it to the original break-even point (x). (You may want to put the lines back to their original position for each scenario.)
Each scenario should be considered independently.
1. The company sells a fixed asset and reduces fixed costs by $2,000. Variable costs remain the same, which means that the slope does not change. This will cause the break-even point to move to the left
• v, which means that break-
even point in sales dollars decreases
2. A new supplier can provide a higher-quality product, but direct materials will increase by $4.00 per unit. If the new supplier is used, the slope of the total costs line will be $
and the break-even point in sales dollars
increases
- v.
3. Market research shows that a price decrease will increase the number
units sold. A price decrease will cause the slope of the sales line to decrease
V. But internal analysis shows that this price decrease will cause the break-even
point in sales to shift to the right
- v, which means that more
v units will need to be sold to break even.
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