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CVP Analysis: Buying a New Machine

Explain how CVP analysis may be helpful in evaluating whether it will be smart to buy a new machine that would reduce labor costs by 60%.

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Cost volume profit (CVP) analyzes how profit change when sales (volume) or costs shift. So, when you are thinking about buying a new machine, it would be smart to first study how the new machine will impact volume (will it create a new feature on the product that will heat up sales?) and costs (labor goes down but ...

Solution Summary

Your discussion is 210 words and gives two reasons that CVP analysis will make certain that the machine purchase will improve profits.