The relationship between income/cost/volume suggests that there are four ways by which profit can be increased. These are:

1. Increase unit selling price.

2. Decrease unit variable cost.

3. Decrease fixed costs.

4. Increase volume.

Assume that the current situation for a product is as follows:

You are required to:

(a) Draw four separate break-even charts showing the effect of the following changes on the current situation:

(i) A 10 per cent increase in volume,

(ii) A 10 per cent increase in unit selling price,

(iii) A 10 per cent decrease in unit variable cost,

(iv) A 10 per cent reduction in fixed costs.

(b) Use your charts to state the additional profit resulting from each change.

Transcribed Image Text:

Sales volume Selling price Variable cost Fixed costs 1,000 units £2 each £1 per unit £500