ACC 208 - Ch. 3 LS

A company's break-even point is 17,000 units. If the contribution margin is $22 per unit and 26,000 units are sold, net operating profit will be...

$198,000 [net operating income= (26,000 - 17,000) x 22]

According to the CVP analysis model and assuming all else remains the same, profits would be increased by a(n)...

Decrease in the unit variable cost

Tommy's Trains is currently selling 55,000 toy trains for $50 per unit. The variable cost per train is $26 and total fixed costs are $110,000. If Tommy sells an additional 5,000 trains profit will...

Increase $120,000 [change in profits= 5,000 x (50-26)]

Solving for the sales level needed to attain a profit of _____ is the same process as solving for the sales level needed to break-even.

Zero

Place the following items in the order in which sales dollars are applied on a contribution margin income statement/

1. Variable Costs 2. Fixed Expenses 3. Net Income

If a company has sales of $100,000 a contribution margin of $40,000, and fixed expenses of $50,000 the company has...

$10,000 net operating loss [contribution margin of 40,000 - fixed expenses 50,000]

A company sold 750 units with a contribution margin of $120 per unit. If the company has a break-even point of 450 units, the net operating income or (loss) is...

$36,000 [(750-450) x 120]

Daisy's Dolls sold 30,000 dolls this year for $40 each. Each doll's variable cost was $19. If Daisy incurred $250,000 of fixed expenses, net operating income for the year is...

$380,000 [net operating income= 30,000 x (40-19) - 25,000]

Seth's Speakers had an actual sales of $1,630,000 if break-even sales equals $935,000, Seth's margin of safety in dollars is...

$695,000 [1,630,000 - 935,000]

CVP analysis allows companies to easily identify the change in profit due to changes in:

-Costs -Selling price -Volume

A change in sales mix...

-From high-margin to low-margin items may cause total profits to decrease despite an increase in total sales -From low-margin to high-margin items may cause total profits to increase despite decrease in total sales

Which of the following are assumptions of cost-volume-profit analysis?

-In multi product companies, the sales mix is constant -Costs are linear and can be accurately divided into variable and fixed elements

The break-even point calculation is affected by...

-Sales mix -Cost per unit -Selling price per unit

JVL enterprises has set a target profit of $126,000. The company sells a single product for $50 per unit. Variable costs are $15 per unit and fixed costs total $98,000. How many units does JVL have to sell to break-even?

2,800 [98,000 / (50-15)]

Run Like the Wing sells ceiling fans. Target profit for the year is $470,000. If each fan's contribution margin is $32 and fixed costs totals $222,640, the number of fans required to meet the company's goal is...

21,645 [sales volume= (470,000 + 222,640) / 32]

A company has reached its break-even point when the contribution margin _____ fixed expenses.

Cover

CVP analysis is based on some _____ that may be violated in practice, but the tool is still generally useful.

Assumptions

Which tool can be used to easily calculate the change in profit resulting from a change in sales price, sales volume, variable costs, or fixed costs?

CVP analysis

The amount remaining from sales revenue after deducting variable expenses is _____ _____.

Contribution Margin

To calculate the degree of operating leverage, divide _____ _____ by net operating income.

Contribution margin

The calculation of contribution margin (CM) ratio is...

Contribution margin / sales

The break-even point indicates the sales volume when the contribution margin _____ to fixed expenses.

Equal

T/F: CVP analysis investigates company personnel policies, business values, and performance measures for a specific company.

False

T/F: Simple CVP analysis can be relied on for changes in volume outside the relevant range.

False

The term "costs structure" refers to the relative proportion of _____ and _____ costs in an organization

Fixed and variable

The amount by which sales can drop before losses are incurred is the _____ of _____.

Margin of safety

Selling price per unit multiplied by the quantity sold equals total _____.

Sales

The term used for relative proportion in which a company's products are sold is...

Sales mix

When preparing a multi-product break-even analysis, the assumption is ordinarily made that the _____ will not change.

Sales mix

When a company has a specific net operating income it wishes to achieve, determining required sales to achieve the specific income is done by using _____ _____ analysis.

Target profit

Orange You Going to Smile? sells oranges for $20 per crate. If the company's margin of safety is $180,000 the margin of safety in units is _____ crates.

9,000 [180,000 / 20]

if operating leverage is high, a small percentage increase in sales can produce a _____ percentage increase in net operating income than if operating leverage is low.

High

To simplify CVP calculations, which of the following is assumed to remain constant?

Selling price