Managerial Accounting Quiz: Cvp Sensitivity Analysis
20 questions · exam conditions
0:00
Cvp Sensitivity AnalysisQuestion 1 of 20

A company is considering a price reduction of $5 per unit for its single product. The marketing manager believes this will increase sales volume by 25%. The product currently sells for $80 per unit, and variable costs are $48 per unit. Fixed costs are $400,000, and current sales are 20,000 units.

What would be the change in the company's annual net operating income if this price reduction is implemented?

A decrease of $15,000
An increase of $35,000
An increase of $60,000
A decrease of $100,000
← Back to quizzes

Managerial Accounting Quiz

Managerial Accounting Quiz: Cvp Sensitivity Analysis

Practice Cvp Sensitivity Analysis in Managerial Accounting with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Cvp Sensitivity Analysis, giving you a quick way to practice the rules, question types, and explanations that matter most for Managerial Accounting.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

A company is considering a price reduction of $5 per unit for its single product. The marketing manager believes this will increase sales volume by 25%. The product currently sells for $80 per unit, and variable costs are $48 per unit. Fixed costs are $400,000, and current sales are 20,000 units.

What would be the change in the company's annual net operating income if this price reduction is implemented?

  1. A decrease of $15,000
  2. An increase of $35,000 (correct answer)
  3. An increase of $60,000
  4. A decrease of $100,000
Explanation: First, calculate the current net operating income. Current CM per unit = $80 - $48 = $32. Current total CM = $32 × 20,000 = $640,000. Current profit = $640,000 - $400,000 = $240,000. Second, calculate the projected net operating income. New price = $80 - $5 = $75. New CM per unit = $75 - $48 = $27. New sales volume = 20,000 × 1.25 = 25,000 units. New total CM = $27 × 25,000 = $675,000. New profit = $675,000 - $400,000 = $275,000. The change in profit is $275,000 - $240,000 = $35,000 increase.

Question 2

Flex-Widgets Inc. has a degree of operating leverage of 5.0. The company's current sales are $800,000 and its net operating income is $100,000. Management anticipates a 15% increase in sales for the upcoming year.

Assuming the cost structure remains unchanged, what is the projected net operating income for the upcoming year?

  1. $115,000
  2. $120,000
  3. $175,000 (correct answer)
  4. $575,000
Explanation: The degree of operating leverage (DOL) measures the percentage change in net operating income for a given percentage change in sales. The formula is: Percentage Change in Net Operating Income = DOL × Percentage Change in Sales. The projected percentage increase in income is 5.0×15%=75%5.0 \times 15\% = 75\%. The projected net operating income is the current income increased by 75%: \100,000 \times (1 + 0.75) = $175,000$.

Question 3

A company sells a product for $100. Variable costs are $60 per unit, and fixed costs are $300,000. Current sales are 10,000 units.

If the company reduces its selling price by 10%, what is the minimum number of units it must sell to achieve the same net operating income as before the price change?

  1. 10,000 units
  2. 11,111 units
  3. 12,500 units
  4. 13,334 units (correct answer)
Explanation: First, calculate the current net operating income (target profit). The original contribution margin per unit is \100 - $60 = $40.Thetotalcontributionmarginis. The total contribution margin is $40 \times 10,000 \text{ units} = $400,000.Thecurrentnetoperatingincomeis. The current net operating income is $400,000 - $300,000 = $100,000.Next,determinethenewcontributionmarginperunit.Thenewsellingpriceis. Next, determine the new contribution margin per unit. The new selling price is $100 \times (1 - 0.10) = $90.Thenewcontributionmarginperunitis. The new contribution margin per unit is $90 - $60 = $30.Finally,calculatetheunitsrequiredtoachievethetargetprofitwiththenewCMperunit:RequiredUnits=(FixedCosts+TargetProfit)/NewCMperUnit=. Finally, calculate the units required to achieve the target profit with the new CM per unit: Required Units = (Fixed Costs + Target Profit) / New CM per Unit = ($300,000 + $100,000) / $30 = $400,000 / $30 = 13,333.33$. The minimum number of units is 13,334.

Question 4

A company has a margin of safety of $200,000, which represents 25% of its total current sales. The company's fixed costs are $150,000.

If fixed costs were to increase by $30,000 with no other changes, what would be the new margin of safety in dollars?

  1. $80,000 (correct answer)
  2. $120,000
  3. $170,000
  4. $200,000
Explanation: First, determine current sales and break-even sales. If margin of safety is 25% of sales, then current sales are $200,000 ÷ 0.25 = $800,000. Break-even sales are $800,000 - $200,000 = $600,000. Next, calculate the contribution margin ratio: $150,000 ÷ $600,000 = 0.25 or 25%. With increased fixed costs: New fixed costs = $150,000 + $30,000 = $180,000. New break-even sales = $180,000 ÷ 0.25 = $720,000. New margin of safety = $800,000 - $720,000 = $80,000.

Question 5

A company is comparing two potential commission structures for its sales force. Option A offers a lower base salary (fixed cost) but a higher commission rate per unit sold (variable cost). Option B offers a higher base salary but a lower commission rate. The indifference point between the two options is 2,000 units per month. The commission rate under Option B is $15 per unit, while Option A's commission rate is $15 higher per unit than Option B's rate.

If management expects monthly sales to be 2,500 units, and the total sales compensation cost under Option B at this level is $55,000, by how much would the total compensation cost under Option A exceed that of Option B?

  1. $5,000
  2. $7,500 (correct answer)
  3. $10,000
  4. $12,500
Explanation: At the indifference point (2,000 units), both options have equal total costs. Since we are above the indifference point at 2,500 units, Option A (with the higher variable cost per unit) will cost more. The difference in total cost equals the difference in variable cost rates multiplied by the units above the indifference point. Variable cost difference = $15 per unit. Additional units above indifference = 2,500 - 2,000 = 500 units. Additional cost under Option A = $15 × 500 = $7,500.

Question 6

A company manufactures a single product with a selling price of $120 and variable costs of $70 per unit. Annual fixed costs are $400,000. Management is considering an intensive advertising campaign that would add $75,000 to fixed costs for the year. The marketing team projects this campaign will increase unit sales by 20% from the current level of 10,000 units.

What would be the net effect on the company's operating income if the advertising campaign is implemented?

  1. A decrease of $5,000
  2. An increase of $25,000 (correct answer)
  3. An increase of $100,000
  4. An increase of $164,000
Explanation: This is a multi-step problem. First, calculate the incremental contribution margin from the projected sales increase. The contribution margin per unit is (120 - \70 = $50). The projected sales increase is 20% of 10,000 units, which is 2,000 units. The additional contribution margin is 2,000 \text{ units} \times \50/\text{unit} = $100,000.Second,subtracttheadditionalfixedcostofthecampaignfromtheadditionalcontributionmargintofindtheneteffectonoperatingincome:. Second, subtract the additional fixed cost of the campaign from the additional contribution margin to find the net effect on operating income: $100,000 - $75,000 = $25,000$ increase.

Question 7

A manufacturing company's current contribution margin ratio is 30%. The company is evaluating a proposal to use a higher-quality raw material, which would increase total variable costs by 15%. The company wants to adjust its selling price to maintain the same contribution margin ratio of 30%.

By what percentage must the selling price be increased to offset the higher material cost and maintain the 30% contribution margin ratio?

  1. 10.5%
  2. 15.0% (correct answer)
  3. 21.4%
  4. 30.0%
Explanation: Let P be the original price and V be the original total variable cost per unit. The original contribution margin ratio (CMR) is (P−V)/P=0.30(P - V) / P = 0.30. From this, we can establish a relationship: P−V=0.30PP - V = 0.30P, which means V=0.70PV = 0.70P. The new variable cost, V', is 15% higher than the original: V′=V×1.15=(0.70P)×1.15=0.805PV' = V \times 1.15 = (0.70P) \times 1.15 = 0.805P. Let P' be the new selling price. The company wants the new CMR to also be 30%: (P′−V′)/P′=0.30(P' - V') / P' = 0.30. Substitute V' with 0.805P0.805P: (P′−0.805P)/P′=0.30(P' - 0.805P) / P' = 0.30. Now, solve for P' in terms of P: P′−0.805P=0.30P′P' - 0.805P = 0.30P', which gives 0.70P′=0.805P0.70P' = 0.805P, so P′=(0.805/0.70)P=1.15PP' = (0.805 / 0.70)P = 1.15P. This means the new price P' must be 1.15 times the old price P, which corresponds to a 15% increase.

Question 8

A company plans to introduce a new product with a selling price of $80 per unit and variable costs of $50 per unit. Fixed costs associated with the new product are $120,000 per month. The company's tax rate is 25%.

How many units must the company sell each month to achieve a target after-tax profit of $45,000?

  1. 5,500 units
  2. 6,000 units (correct answer)
  3. 6,500 units
  4. 8,200 units
Explanation: This problem requires converting the after-tax profit target into a before-tax profit target. The formula is: Before-Tax Profit = After-Tax Profit / (1 - Tax Rate). Before-Tax Profit = \45,000 / (1 - 0.25) = $45,000 / 0.75 = $60,000.Next,calculatethenumberofunitsneededtoachievethisbefore−taxprofit.Thecontributionmarginperunitis. Next, calculate the number of units needed to achieve this before-tax profit. The contribution margin per unit is $80 - $50 = $30.Theformulafortargetprofitunitsis:(FixedCosts+TargetBefore−TaxProfit)/ContributionMarginperUnit.Requiredunits=. The formula for target profit units is: (Fixed Costs + Target Before-Tax Profit) / Contribution Margin per Unit. Required units = ($120,000 + $60,000) / $30 = $180,000 / $30 = 6,000$ units.

Question 9

Veridian Corp. reported a net operating loss of $40,000 on sales of 10,000 units. Its total contribution margin for the period was $160,000.

Assuming the cost structure does not change, what percentage increase in unit sales is required for Veridian Corp. to reach its break-even point?

  1. 20.0%
  2. 25.0% (correct answer)
  3. 33.3%
  4. 50.0%
Explanation: First, determine the fixed costs using the profit equation. Profit = Total Contribution Margin - Fixed Costs, so Fixed Costs = Total Contribution Margin - Profit = 160,000−(−160,000 - (-40,000) = $200,000. Next, calculate the contribution margin per unit: $160,000 ÷ 10,000 units = $16 per unit. The break-even point in units is Fixed Costs ÷ Contribution Margin per unit = $200,000 ÷ $16 = 12,500 units. The company needs to sell 2,500 additional units (12,500 - 10,000). The percentage increase required is (2,500 ÷ 10,000) × 100% = 25.0%.

Question 10

A company is considering automating a production line. The project would increase annual fixed costs by $150,000 but would decrease variable manufacturing costs by $8 per unit. The product's selling price is $50 per unit, and the company currently sells 30,000 units per year.

At what sales volume, in units, would the company be indifferent between the current process and the automated process?

  1. 12,500 units
  2. 18,750 units (correct answer)
  3. 25,000 units
  4. 30,000 units
Explanation: The point of indifference is the volume at which total costs (and therefore total profit) are equal for both alternatives. Let Q be the number of units. Let VC be the original variable cost. The equation is: Original Costs = Automated Costs. FCold+VCold×Q=FCnew+VCnew×QFC_{old} + VC_{old} \times Q = FC_{new} + VC_{new} \times Q. We know FC_{new} = FC_{old} + \150,000andandVC_{new} = VC_{old} - $8.Substitutingthesegives:. Substituting these gives: FC_{old} + VC_{old} \times Q = (FC_{old} + $150,000) + (VC_{old} - $8) \times Q.Simplifyingtheequation:. Simplifying the equation: VC_{old} \times Q = $150,000 + VC_{old} \times Q - $8 \times Q.Thisfurthersimplifiesto. This further simplifies to $8 \times Q = $150,000.SolvingforQ:. Solving for Q: Q = $150,000 / $8 = 18,750$ units. The selling price and current sales volume are distractors.

Question 11

A company sells two products, Alpha and Beta. The sales mix is 3 units of Alpha for every 2 units of Beta. Fixed costs for the company are $234,000. Additional data is as follows:

  • Alpha: Selling Price $60, Variable Cost $40
  • Beta: Selling Price $90, Variable Cost $60

The company is considering a promotional campaign focused solely on Beta, which is expected to shift the sales mix to 2 units of Alpha for every 3 units of Beta. If this shift occurs, what will be the effect on the company's overall break-even point in total units?

  1. Decrease by 750 units (correct answer)
  2. Decrease by 1,500 units
  3. Increase by 930 units
  4. Increase by 1,250 units
Explanation: First, calculate the break-even point with the original mix. CM for Alpha = $60 - $40 = $20. CM for Beta = $90 - $60 = 30.Theoriginalbundlecontains3Alphasand2Betas.Weighted−averageCMperunit=(30. The original bundle contains 3 Alphas and 2 Betas. Weighted-average CM per unit = (20 × 3 + 30×2)÷(3+2)=(30 × 2) ÷ (3 + 2) = (60 + $60) ÷ 5 = $24. Original break-even point = $234,000 ÷ 24=9,750totalunits.Next,calculatethebreak−evenpointwiththenewmix.Thenewbundlecontains2Alphasand3Betas.Newweighted−averageCMperunit=(24 = 9,750 total units. Next, calculate the break-even point with the new mix. The new bundle contains 2 Alphas and 3 Betas. New weighted-average CM per unit = (20 × 2 + 30×3)÷(2+3)=(30 × 3) ÷ (2 + 3) = (40 + $90) ÷ 5 = $26. New break-even point = $234,000 ÷ $26 = 9,000 units. The change is a decrease of 750 units (9,750 - 9,000 = 750).

Question 12

A company is shifting its cost structure through automation. The change will cause annual fixed costs to increase from $500,000 to $875,000, while the variable cost per unit will decrease from $25 to $15. The selling price of $40 per unit will remain unchanged.

Which of the following statements accurately describes the impact of this change?

  1. The break-even point in units will decrease.
  2. The company's net income will become less sensitive to changes in sales volume.
  3. The contribution margin per unit will decrease.
  4. Profits will be higher than before at sales volumes above 37,500 units. (correct answer)
Explanation: Let's analyze each option. Original CM = $40 - $25 = $15. Original BEP = $500,000 ÷ $15 = 33,333 units. New CM = $40 - $15 = $25. New BEP = $875,000 ÷ $25 = 35,000 units. A: False - the break-even point increases from 33,333 to 35,000 units. B: False - the higher CM per unit and higher fixed costs create higher operating leverage, making income more sensitive to volume changes. C: False - CM per unit increases from $15 to $25. D: True - to find the indifference point: $15Q - $500,000 = $25Q - $875,000, solving: $375,000 = $10Q, so Q = 37,500 units. Above 37,500 units, the new structure with higher CM per unit generates more profit.

Question 13

A company operates with a high degree of operating leverage. It is considering two proposals to increase profitability from its current level of $50,000. Proposal 1 is to increase the selling price by 10%, which is expected to decrease unit sales by 5%. Proposal 2 is to reduce variable costs by 8%, with no expected change in price or sales volume.

Which of the following statements is true regarding the impact of these proposals on the company's break-even point in units?

  1. Proposal 1 will cause a larger decrease in the break-even point than Proposal 2.
  2. Proposal 2 will cause a larger decrease in the break-even point than Proposal 1.
  3. Both proposals will cause an identical decrease in the break-even point.
  4. The relative impact on the break-even point cannot be determined from the information given. (correct answer)
Explanation: The break-even point in units is calculated as Fixed Costs / Contribution Margin per Unit. Let's analyze the effect of each proposal on the CM per unit. Let P, V, and CM be the original price, variable cost, and contribution margin per unit. Original CM = P - V. Proposal 1 New CM = 1.05P−V1.05P - V. The change is 0.05P0.05P. Proposal 2 New CM = P−0.92VP - 0.92V. The change is 0.08V0.08V. To compare the impact on the break-even point, we need to compare the new CMs, which means we must compare 0.05P0.05P with 0.08V0.08V. The relationship between P and V is unknown. For example, if P=100andV=100 and V=20 (high margin), the change is $5 for Prop 1 and 1.60forProp2.Prop1hasalargerimpact.IfP=1.60 for Prop 2. Prop 1 has a larger impact. If P=100 and V=$90 (low margin), the change is $5 for Prop 1 and $7.20 for Prop 2. Prop 2 has a larger impact. Since we don't know the original cost structure (i.e., the contribution margin ratio), we cannot determine which proposal has a greater effect on the CM per unit and thus on the break-even point.

Question 14

A company projects sales of 25,000 units at a price of $40 per unit. The contribution margin ratio is 30%, and the margin of safety is 40% of projected sales.

If the company's variable cost per unit increases by $2, holding the selling price and sales volume constant, what will be the new margin of safety in dollars?

  1. $280,000 (correct answer)
  2. $300,000
  3. $350,000
  4. $400,000
Explanation: First, determine the current CVP structure. Projected sales = 25,000 × $40 = $1,000,000. Margin of safety (MOS) = 40% × $1,000,000 = $400,000. Break-even sales = $1,000,000 - $400,000 = $600,000. Fixed costs = Break-even sales × CMR = $600,000 × 0.30 = $180,000. Second, analyze the change. Old CM per unit = $40 × 0.30 = $12. New CM per unit = $12 - $2 = $10. Third, calculate the new break-even point. New CMR = $10 ÷ $40 = 0.25. New break-even sales = $180,000 ÷ 0.25 = $720,000. Finally, calculate the new MOS. New MOS = $1,000,000 - $720,000 = $280,000.

Question 15

A company is currently operating at its break-even point, selling 20,000 units annually. The selling price is $50 per unit, and total fixed costs are $400,000. Management decides to increase the selling price by 10% while anticipating no change in sales volume or fixed costs.

What will be the company's net operating income after the price increase is implemented?

  1. $40,000
  2. $60,000
  3. $100,000 (correct answer)
  4. $140,000
Explanation: First, determine the original variable cost per unit. At the break-even point, Total Contribution Margin = Fixed Costs. Total Revenue is 20,000 \text{ units} \times \50 = $1,000,000.Thetotalcontributionmarginis$400,000.Therefore,totalvariablecostsare. The total contribution margin is $400,000. Therefore, total variable costs are $1,000,000 - $400,000 = $600,000,andthevariablecostperunitis, and the variable cost per unit is $600,000 / 20,000 \text{ units} = $30.Thenewsellingpriceis. The new selling price is $50 \times 1.10 = $55.Thenewcontributionmarginperunitis. The new contribution margin per unit is $55 - $30 = $25.Thenewtotalcontributionmarginis. The new total contribution margin is $25 \times 20,000 \text{ units} = $500,000.Newnetoperatingincomeis. New net operating income is $500,000 - $400,000 = $100,000.Alternatively,thepriceincreaseof($5)perunitdirectlyincreasesthecontributionmarginby($5)perunit.Thetotalincreaseinprofitis. Alternatively, the price increase of ($5) per unit directly increases the contribution margin by ($5) per unit. The total increase in profit is $5 \times 20,000 \text{ units} = $100,000$.

Question 16

A company's net operating income increased by $42,000 during a period. In that same period, the selling price per unit increased by 10% and total fixed costs increased by $18,000. Sales volume and variable cost per unit remained constant.

What was the company's total sales revenue in the prior period, before these changes occurred?

  1. $240,000
  2. $420,000
  3. $600,000 (correct answer)
  4. $780,000
Explanation: Let R be the original sales revenue. The increase in selling price by 10% increased total revenue by 0.10×R0.10 \times R. This revenue increase flows directly to the contribution margin and profit, as volume and variable cost per unit are unchanged. The change in profit can be expressed as: Change in Profit = Change in Revenue - Change in Fixed Costs. We are given that the change in profit is ($42,000) and the change in fixed costs is ($18,000). So, \42,000 = (0.10 \times R) - $18,000.TosolveforR,firstadd($18,000)tobothsides:. To solve for R, first add ($18,000) to both sides: $60,000 = 0.10 \times R.Then,divideby0.10:. Then, divide by 0.10: R = $60,000 / 0.10 = $600,000$.

Question 17

Stark Industries produces a component with variable costs of $30 per unit. The company is evaluating an offer from an outside supplier to provide the component for $34 per unit. If Stark accepts the offer, it can eliminate $50,000 in annual fixed costs and use the freed-up capacity to produce a new product, 'Jarvis', which would generate an estimated segment margin of $70,000 per year.

What is the maximum number of components Stark can be using annually for the outsourcing option to be financially advantageous?

  1. 25,000 units
  2. 28,750 units
  3. 30,000 units (correct answer)
  4. 32,500 units
Explanation: This is an indifference point problem with an opportunity cost. We need to find the volume (Q) at which the cost of making equals the cost of buying. Cost of Making = Variable Costs + Avoidable Fixed Costs = \30 \times Q + $50,000.CostofBuying=PurchasePrice−OpportunityBenefit=. Cost of Buying = Purchase Price - Opportunity Benefit = $34 \times Q - $70,000.Setthetwoexpressionsequaltofindtheindifferencepoint:. Set the two expressions equal to find the indifference point: $30Q + $50,000 = $34Q - $70,000.Now,solveforQ.. Now, solve for Q. $120,000 = $4Q.. Q = 30,000units.At30,000units,thecompanyisindifferent.Belowthisvolume,thecostofmakingislower(e.g.,at1unit,costtomakeis  units. At 30,000 units, the company is indifferent. Below this volume, the cost of making is lower (e.g., at 1 unit, cost to make is ~50k, cost to buy is ~$ -70k, so buying is better). Above this volume, the higher variable cost of buying outweighs the benefits. Thus, for outsourcing (buying) to be advantageous, the company must be using at or below 30,000 units. The question asks for the maximum number of components, which would be the indifference point of 30,000 units.

Question 18

A company sells a premium product for $250 per unit. A key component of this product has a variable cost of $80. The supplier of this component has announced a 15% price increase for next year. All other variable costs amount to $70 per unit. The company wishes to increase its selling price to fully absorb this cost increase and maintain its current contribution margin in dollars per unit.

What will be the new selling price for the premium product?

  1. $262.00 (correct answer)
  2. $267.50
  3. $287.50
  4. $295.45
Explanation: The goal is to maintain the current contribution margin (CM) in dollars per unit, not the CM ratio. First, calculate the current total variable cost and CM per unit. Current component cost = $80. Other variable costs = $70. Total variable cost = \80 + $70 = $150.CurrentCMperunit=SellingPrice−TotalVC=. Current CM per unit = Selling Price - Total VC = $250 - $150 = $100.Next,calculatethenewvariablecost.Thecomponentcostincreasesby15. Next, calculate the new variable cost. The component cost increases by 15%: $80 \times 0.15 = $12.Thenewcomponentcostis. The new component cost is $80 + $12 = $92.Thenewtotalvariablecostis. The new total variable cost is $92 + $70 = $162.TomaintaintheCMperunitat$100,thenewsellingpricemustbe:NewSellingPrice=NewTotalVC+OldCMperUnit=. To maintain the CM per unit at $100, the new selling price must be: New Selling Price = New Total VC + Old CM per Unit = $162 + $100 = $262$.

Question 19

A company is currently selling 8,000 units per month for $60 per unit. The variable cost is $35 per unit, and monthly fixed costs are $150,000. The company has the capacity to produce 9,500 units per month. A new proposal suggests reducing the price to $55 per unit.

Assuming the price reduction increases demand by 30%, what is the expected change in monthly operating income?

  1. An increase of $8,000
  2. An increase of $10,000
  3. A decrease of $10,000 (correct answer)
  4. A decrease of $40,000
Explanation: This question includes a capacity constraint that must be considered. First, calculate the new potential demand: 8,000 units × 1.30 = 10,400 units. However, the company's production capacity is only 9,500 units per month. Therefore, the analysis must be based on selling 9,500 units, not 10,400. Current profit: CM per unit = $60 - $35 = $25. Total CM = $25 × 8,000 = $200,000. Current profit = $200,000 - $150,000 = $50,000. Proposed profit: New price = $55. New CM per unit = $55 - $35 = $20. Sales constrained to 9,500 units. New total CM = $20 × 9,500 = $190,000. New profit = $190,000 - $150,000 = $40,000. The change in profit is $40,000 - 50,000=−50,000 = -10,000.

Question 20

Nexus Company's CVP analysis reveals that a 10% increase in volume results in a 35% increase in operating income, while a 10% decrease in volume results in a 40% decrease in operating income. This asymmetric response indicates which of the following about their cost structure?

  1. Mixed costs with step-fixed components create asymmetric leverage effects (correct answer)
  2. Variable costs include volume discounts that affect the cost structure
  3. Operating leverage calculations contain computational errors in the analysis
  4. The company operates near break-even point causing sensitivity variations
Explanation: True CVP analysis with purely fixed and variable costs should show symmetric operating leverage (same percentage change in income for equal percentage changes in volume). The asymmetric response (35% vs 40%) indicates the presence of mixed costs or step-fixed costs that behave differently as volume increases versus decreases. Step-fixed costs might be reduced when volume drops but not proportionally increased when volume rises. Choice B is incorrect because volume discounts would typically show symmetric behavior. Choice C assumes errors rather than recognizing legitimate cost behavior. Choice D is incorrect because proximity to break-even would increase sensitivity but maintain symmetry.