accounting chapter 6

A company sells a product for $80 per unit and has a contribution margin ratio of 45%. Fixed costs total $180,000. Sales dollar to break even equals

$400,000

Larson's Ltd. sells its product for $12.00 per unit. The contribution margin per unit is $8.00 and fixed costs are $75,000. Larson has to sell to ______ units to break even.

9,375

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

All costs can be classified as either fixed or variable. Production volume is equal to sales volume. In multi-product companies, the sales mix is constant.

Solving for the sales level needed to achieve a profit of zero is

BEA break even analysis

Degree of operating leverage equals

Contribution margin ÷ Net operating income

The excess of the budgeted (or actual) sales dollars over break-even sales is called the

margin of safety

According to the assumptions of CVP, ______ will not change as the volume of a product increases or decreases. Multiple choice question.

price

Sweet Dreams sells 15,000 pillows per year for $25 per unit. Variable cost per unit is $14. Sweet Dreams wants to improve customer satisfaction by using higher quality direct materials which will increase the variable cost per unit to $19. Fixed costs per year total $90,000. If sales increase by 5,000 units per year, what price will Sweet Dreams have to charge to earn the same profit it is earning now ($75,000 per year)?

$27.25

Given budgeted sales of $982,000, break-even sales of $932,200, and fixed expenses of $429,000, the budgeted margin of safety in dollars is

$49,800

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

Desks by Daisy sells a student desk for $100 per unit. The variable cost per desk is $40 and Daisy's fixed costs of producing the desks equals $15,000 per month. Daisy needs to sell________ desks per month in order to break-even.

250 (100 x 15,000) - (40 x 15,000)

Given net operating income of $50,000, contribution margin of $150,000 and sales of $300,000, the degree of operating leverage of

3

A company sells 15,000 units of product per month. The sales price per unit is $5.00, variable costs are $2.80 per unit and and total fixed costs equal $3,000. The contribution margin ratio is

44%

Given sales of 10,000 units per month, sales price per unit of $4.00, variable costs of $1.80 per unit and and total fixed costs of $5,000, the contribution margin ratio is

55%

Given fixed costs of $30,000, variable costs of $2.00 per unit, and a contribution margin of $5.00 unit, __________ units have to be sold in order to break even

6,000

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

695000

Given total fixed costs of $35,000 and a contribution margin ratio of 40%, $

87,500

In the profit equation, total ______ is a function of the number of units sold (Q).

Sales revenue variable costs

The equation for the profit equation method is

Total Sales Revenue - Total Variable Costs - Total Fixed Costs = Profit

When constructing a CVP graph, the place where the total cost line intercepts the y-axis represents

Total fixed costs

CVP

allows managers to see how changing one variable can impact another can be used for "what-if" analysis can be used to make many different decisions

If a company raises the price of a product with no change in costs, the unit contribution margin and contribution margin ratio will

both increase

A degree of operating leverage greater than one means that managers are using ______ to create operating leverage.

contribution margin

The contribution margin stated as a percentage of sales dollars is the

contribution margin ratio

Contribution margin

covers fixed cost and profit

When a company increases the selling price of a product with no change in variable cost per unit or total fixed costs, the break-even point for that product will

decrease

An increase in sales will increase net operating income by a multiple of that increase in sales. The multiple is known as the

degree of operating leverage

When constructing a CVP graph, the vertical axis represents

dollars

CVP analysis can help answer the question of

how net income can be increased

The amount that each unit sold contributes to fixed costs and profit is

unit contribution margin

Contribution margin equals sales minus

variable manufacturing costs variable selling and administrative costs

CVP analysis can be useful in deciding

which services to offer which products to offer what investments to make

The goal of break-even analysis is to find the level of sales where profit is equal to

zero