CVP Quiz Yourself #1

Charlie is both reassured and alarmed by the implications of your CVP graph, "Only four units a month doesn't sound bad," he says with obvious satisfaction. "But that means four units every month. My wife and I like to travel and visit our daughters and their families. During the summer I spend a lot of time in my rose garden. I'm still paying rent here at the shop when we're on the road or when I'm working in the yard. Is there any way we can come up with an analysis that will provide some insight about how all this works out on an annual basis? What happens if I decide to work here in the shop only ten months a year?"

Required: Use your Excel worksheet to develop a profit graph that shows Charlie's annual profits or losses based on production from zero to 70 units in 5 unit increments.

Answer

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Clearly Charlie has his work cut out for him. For every month in which he produces less than four units, he has to produce that many more in the other months. If he only works 10 months a year and produces just the breakeven volume each month, he'll lose a bit over $1,000 in a year.

Copyright © 2004 Gerald M. Myers. All rights reserved. This site has been developed as aid to instructors and students in managerial accounting. The scenarios contained herein are not intended to reflect effective or ineffective handling of managerial situations. Any resemblance to existing organizations is purely coincidental.

Last modified: August 03, 2005