Accounting II ch5

the __ __ __ is calculated by dividing the total margin by total dollar sales.

contribution margin ratio

if the total contribution margin is less than the total fixed expenses, then a __ will occur

net loss

seth's speakers has actual sales of $1,630,000. Before the beginning of the year, the company determined that its break-even point was $935,000. What is seth's speaker's margin of safety in dollars?

!,630,000-935,000=695,000

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?

$98,000/(50-15)=2,800

sales total $500,000, and fixed costs total $300,000. The contribution margin ratio is 68%. Profit=$

(500,000*.68)-300,000=$40,000

the single point where the total revenue line crosses the total expense line on the CVP graph indicates:

- the break-even point -profit equals zero

select all factors which determine whether a cost structure with higher variable costs is better than one with higher fixed costs.

- year-to-year fluctuations in the level of sales -the attitude of owners toward risk - long-run trends in sales

company A has a contribution margin ration of 35%. What is the increase in contribution margin for each additional $1 of sales?

-$0.35 -35%x$1

the break-even point can be affected by which of the following?

-CM per unit -total fixed costs -sales mix

which of the following statements are correct in regards to a change in a company's sales mix?

-a change in sales mix from high-margin to low-margin items may cause total profits to decrease despite an increase in total sales. -a change in sales mix from low-mawrgin to high margin items may cause total profits to increase despite a decrease in total sales.

which of the following items are needed to solve for profit at any projected sales volume above the break-even point?

-contribution margin per unit -projected unit sales -break-even unit sales

the profit graph allows users to easily identify:

-the profit at any given sales volume. -the sales volume required to reach the break-even point

place the following terms in the correct order in which they appear on the contribution margin format income statement.

1. sales 2. variable expenses 3. contribution margin 4. fixed expenses 5. Net operating income

blissful blankets hopes to achieve a profit this year of $520,000. Each blanket has a contribution margin of $21. Fixed costs for the company are $320,000. How many blankets does blissful blankets need to sell in order to achieve its target profit?

40,000

A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. What is the break-even point in unit sales?

7,625

a company has a target profit of 204,000. the company's fixed costs are $305,000. The contribution margin per unit is $40. What is the break-even point in unit sales?

7,625 units

in order to reach a target profit of $180,000, 90,000 units need to be sold. Assuming each unit sells for $7.50, the total sales dollars needed to reach the target profit is $

90,000x$7.50=$675,000

company A's product sells for $90 per unit and has a variable cost of $35 per unit. If company A sells 16,000 units and incurs total fixed cost of $550,000, the unit contribution margin is:

90-35=55(UCM)

when referring to a company with multiple products, which of the following statements is correct?

a change in the sales mix will most likely result in a change to the break-even point

contribution margin:

becomes profit after the break-even point.

solving for the sales level needed to achieve a target profit of zero is the same process as solving for the sales level needed to:

break-even

to calculate the degree of operating leverage, divide __ margin by net operating income.

contribution

after reaching the break-even point, a company's net operating income will increase by the __ __ per unit for each additional unit sold.

contribution margin

an income statement constructed under the __ approach allows users to easily solve for the total sales, total costs and profit for any sales volume.

contribution margin

to calculate profit, multiply the __ per unit by sales volume and then subtract total fixed cost.

contribution margin

to estimate the effect on profits for a planned increase in sales, multiply the increase in units sold by the unit __ __.

contribution margin

CVP is the acronym for __-__-__

cost - volume - profit

assuming the sales price remains constant, an increase in the variable cost per unit will __ the contribution margin per unit

decrease

in order to convert the margin of safety from dollar form to percentage form, the margin of safety in dollars must be __ by the budgeted (or actual) sales in dollars.

divided

the break-even point indicates the sales volume needed to make contribution margin __ to fixed expenses.

equal

a company has reached its break-even point when the contribution margin __ fixed expenses.

equals

if operating leverage is high, a small percentage increase in sales can produce a much _ percentage increase in net operating income.

larger

the __ of __ in dollars is the excess of the budgeted (or actual) sales dollars over the break-even sales dollars.

margin; safety

the term sales __ refers to the relative proportions in which a company's products are sold.

mix

to calculate the impact on net income using the contribution margin ratio, __ the change in __ by the contribution margin ratio.

multiply; sales

which of the following is the equation to solve for profit in terms of sales volume?

profit=(unit contribution margin x unit sales) - fixed expense

operating leverage is a measure of how sensitive net operating income is to a given percentage change in __ dollars.

sales

A company's selling price is $90 per unit; its variable cost per unit is $28; and its total fixed expenses are $320,000. What sales volume is needed to achieve the target profit of $200,800

sales volume=($320,000+$200,800)/(90-28) = 8400 units.

Run like the wind sells ceiling fans. The company is hoping to earn $470,000 in net income this year. The fans generate a contribution margin per unit of $32 and fixed costs total $222,640. How many fans does the company need to sell in order to achieve its goal?

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

the calculation of contribution margin (CM) ratio is:

total contribution margin/total sales

when a company only produces a single product, the total variable cost can be calculated with the equation:

variable cost per unit x quantity of units sold

variable expenses/sales is the calculation of the __ __ ratio.

variable expense

the term "cost structure" refers to the relative portion of __ and __ costs in an organization.

variable; fixed

on a profit graph, the sales volume where profit is __ is the break-even point

zero

to convert the formula for sales dollars required to attain a target profit to sales of dollars required to break-even, set target profit to $__.

zero

which of the following correctly apply to a company which produces and sells multiple products?

-each product most likely has a unique total of fixed costs. -each product most likely creates a unique total of fixed costs. -a change in the sales mix will most likely result in a change to the break-even point

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

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

The break-even point calculation is affected by which of the following items?

-selling price per unit -sales mix -total fixed cost -variable cost per unit

the contribution margin income statement allows users to easily judge the impact of a change in __ on profit.

-selling price per unit -total fixed costs -volume of sales -variable cost per unit.

when using incremental analysis, which of the following items are considered when making a decision?

-the change in volume resulting specifically from the decision -the change in cost resulting specifically from the decision -the change in sales dollars resulting specifically from the decision.

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

-volume -cost -sales revenue

pete's putters manufactures and sels a specialized golf putter. The company sells each putter for $125. The variable cost is $60 per putter and fixed costs total $400,000. Based on this information which of the following statements are true?

-if pete's putters sells 12,000 putters, net operating income would be $380,000. *12,000 units x $65 contribution margin = $780,000 - $400,000 = $380,000* -the contribution margin per unit is $65

the contribution margin statement is primarily used for:

-internal decision making -CVP analysis

total __ equals the selling price per unit multiplied by the quantity sold.

sales

the contribution margin is equal to:

sales minus variable expenses

Candle central has $1,440 of total variable expense for a sales level of 600 units and $2,160 of total variable expense for a sales level of 900 units. If candle central sells 500 units, which of the following statements would be true?

-the variable cost per unit is $2.40 -total variable cost is $1,200

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

steel, inc. has a margin of safety in dollars of $559,740. if sales were budgeted at $2,946,000, steel's margin of safety percentage rounded to the nearest whole percent is __%

19%

the CVP graph evaluates CVP relationships over a wide range of __ levels

activity

the __ that underlie CVP analysis may be violated, but the tool is still generally useful.

assumptions

which of the following equations can be used to solve for the change in profit due to a change in sales and fixed expenses?

change in profit = CM ratio x change in sales - change in fixed expenses

which of the represents the equation that should be used in setting a target selling price for a special order bulk sale that does not affect a company's normal sales?

selling price per unit = variable cost per unit + desired profit per unit.

place the following items in order to create the equation used to calculate the variable expense ratio using total values.

total variable expenses/total sales dollars

the margin of safety in __ form is calculated by dividing the margin of safety in dollars by the selling price per unit.

unit

the formula to calculate the sales volume needed to achieve a target profit is:

unit sales to attain a target profit = (target profit+fixed expenses)/unit contribution margin

incremental analysis is the act of directing focus to only those changes in revenue, cost, and __ resulting from a decision.

volume

at the break-even point:

-all expenses have been covered by sales -net operating income is zero

if a company with excess capacity has an opportunity to take an order in addition to its regular sales, the sales price per unit must cover which of the following costs?

-any cost incurred by accepting the order -variable manufacturing cost per unit