The assumptions underlying the CVP analysis outlined in Chapter 3 are
Changes in the level of revenues and costs arise only because of changes in the number
of product (or service) units sold.
Total costs can be separated into a fixed component that does not vary with the units sold
and a component that is variable with respect to the units sold.
When represented graphically, the behavior of total revenues and total costs are linear
(represented as a straight line) in relation to units sold within a relevant range and time
The selling price, variable cost per unit, and fixed costs are known and constant.
Sales ($30 per unit × 200,000 units)
Variable costs ($25 per unit × 200,000 units)
Contribution margin (from above)
Sales (from above)
Variable costs ($16 per unit × 200,000 units)
Operating income is expected to increase by $200,000 if Ms. Schoenen’s proposal is