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CVP Analysis: Buying a New Machine

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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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Solution Summary

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

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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 provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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