ACCT 202 Chapter 5 Connect

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 = $198,000

Pete's Putters sells each putter for $125. The variable cost is $60 per putter and fixed costs total $400,000. Based on this information ______.

The contribution margin per putter is $65. The sale of 12,000 putters results in net operating income of $380,000.

The variable expense ratio is the ratio of variable expense to ______.

sales.

Terry's Trees has reached its break-even point and has a contribution margin ratio of 70%. For each $1 increase in sales ______.

total contribution margin will increase by $0.70 net operating income will increase by $0.70

The break-even point is reached when the contribution margin is equal to:

total fixed expenses

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

equals.

Once the break-even point is reached, the sale of an additional unit increases contribution margin by an amount that is ______ the increase in net operating income.

equal to.

Company A has a contribution margin ratio of 35%. For each dollar in sales, contribution margin will increase by ______.

$0.35.

Given sales of $100,000 a contribution margin of $40,000, and fixed expenses of $50,000, the result is a ______.

$10,000 net operating loss Reason: Contribution margin of $40,000 - fixed expenses of $50,000 = a $10,000 loss.

Adam's Sports Store has a contribution margin ratio of 55% and has already passed the break-even point for the year. If Adam's generates additional sales of $250,000 by year-end, net operating income will increase by ______.

$137,500.

Anne's Antique Store has a contribution margin ratio of 29%. The break-even point has been reached. If the store generates an additional $600,000 of sales for the year, net operating income will increase by ______.

$174,000 (600,000 x 29% = 174,000).

Company A has fixed costs of $564,000 and has set a target profit of $800,000. If Company A has a contribution margin ratio of 62%, sales dollars needed to reach the target profit equals ______.

$2,200,000.

Shonda's Shoes sell for $95 per pair. If Shonda must sell 284 pairs of shoes to break-even, sales dollars needed to break-even equals $___________.

$26,980.

A company has total sales of $1,430,000. Fixed expenses are $657,000 and the contribution margin ratio is 67%. Company profit (loss) is ______.

$301,100.

Daisy's Dolls sold 30,000 dolls this year. Each doll sold for $40 and had a variable cost of $19. Fixed expenses were $250,000. Net operating income for the year is ______.

$380,000 Reason: Net operating income =30,000 × ($40 - $19) - $250,000 = $380,000

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

$40,000 (500,000 x 68% - 300,000 = 40,000.

A product has a selling price of $10 per unit, variable expenses of $6 per unit and total fixed costs of $35,000. If 10,000 units are sold, net operating income will be:

$5,000.

Company A's product sells for $90 and has a variable cost of $35 per unit. Fixed costs total $550,000. If Company A sells 16,000 units, the contribution margin per unit is ______.

$55.

Vivian's Violins has sales of $326,000, contribution margin of $184,000 and fixed costs total $85,000. Vivian's Violins net operating income is ______.

$99,000

Net operating income equals:

(unit sales - unit sales to break even) x unit contribution margin

Bluin Corporation pays its salesperson a flat salary of $5,750 per month and is considering paying $30 per unit instead. Current unit sales are 250 per month, but Bluin believes the compensation change will increase unit sales by 50%. Bluin's current contribution margin is $100 per unit. If Bluin switches the compensation and sales grow as expected, net operating income will ______ per month.

- increase by $7,000 Current net operating income = ($100 × 250) - $5,750 = $19,250. With the change salary becomes a variable cost and net operating income would be: ($100 - $30) × 250 × 150% = $26,250, an increase of $7,000 per month

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.

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

21,645.

Spice sells paprika for $9.00 per bottle. Variable cost is $2.43 per bottle and Spice's annual fixed costs are $825,000. The variable expense ratio for paprika is ______.

27%.

The Cutting Edge sells ice skates. Total sales are $845,000, total variable expenses are $245,050 and total fixed expenses are $302,000. The variable expense ratio is ______.

29%.

Given sales of $1,452,000, variable expenses of $958,320 and fixed expenses of $354,000, the contribution margin ratio is ______.

34%.

Company A sells its product for $10 per unit. If Company A has variable expenses of $5 per unit and fixed expenses of $200,000, the break-even point in units and dollars is ______.

40,000 units and $400,000.

Blissful Blankets' target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets that must be sold to achieve the target profit is ______.

40,000.

Seating Galore sells high-end desk chairs. The variable expense per chair is $85.05 and the chairs sell for $189.00 each. The variable expense ratio for Seating Galore's chairs is ____________%.

45.

Gifts Galore had sales revenue of $189,000. Total contribution margin was $100,170 and total fixed expenses were $27,500. The contribution margin ratio was ______.

53%.

A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. The BREAK-EVEN point in unit sales is ______.

7,625 Break-even point = $305,000 ÷ $40 = 7,625

A company's selling price is $90 per unit, variable cost per unit is $28 and total fixed expenses are $320,000. The number of unit sales needed to earn a target profit of $200,800 is ______.

8,400.

CVP is the acronym for

Cost Volume Profit

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

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

Sweet Dreams sells pillows for $25 each. Variable costs are $15 per pillow. The company is considering improving the quality of materials which will increase variable costs to $19. The company expects the improved materials will increase sales from 1,200 to 1,500 pillows per month. The impact of this change on total contribution margin would be a(n) ____________ (increase/decrease) of $____________.

Decrease, $3,000.

A company currently has sales of $700,000 and a contribution margin ratio of 45%. As a result of increasing advertising expense by $8,000, the company expects to increase sales to $735,000. If this is done and these results occur, net operating income will ______.

Increase by $7,750 (Change in NOI = 735,000 - 700,000 x 45% - 8,000 = 7,750.)

The contribution margin as a percentage of sales is referred to as the contribution margin or CM ____________.

Ratio.

The variable expense ratio equals variable expenses divided by ______.

Sales.

Which of the following is needed to calculate profit? Multiple choice question. Unit contribution margin and total fixed costs Contribution margin ratio and total fixed costs Contribution margin ratio, unit sales, and total fixed costs Unit contribution margin, unit sales, and total fixed costs

Unit contribution margin, unit sales, and total fixed costs.

Variable expenses ÷ Sales is the calculation for the ____________ ____________ ratio.

Variable cost

Profit = (selling price per unit × quantity sold) - (____________) expense per unit × quantity sold) - ____________ expenses.

Variable, fixed.

The contribution margin equals sales minus all ______ expenses.

Variable.

Solving for the sales level needed to achieve a profit of zero is the same process as solving for the sales level needed to ______.

break even.

When a company sells one unit above the number required to break-even, the company's net operating income will ______.

change from zero to a net operating profit

When making a decision using incremental analysis consider the ______.

change in cost resulting specifically from the decision change in sales dollars resulting specifically from the decision

Users can easily judge the impact on profits of changes in selling price, cost or volume when using an income statement constructed under the ______ approach.

contribution margin

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

contribution margin ÷ sales.

To calculate profit, multiply the ______ per unit by sales volume and subtract total fixed cost.

contribution margin.

Tasty Tangerine is currently selling 50,000 boxes for $25 per box. Variable cost per box is $17 and fixed costs total $260,000. A plan is being considered to spend $60,000 on advertising and reduce the selling price by $2 per box. Management believes this plan will increase sales volume by 24,000 boxes. If management's predictions are correct, making these changes will cause net income for the year to ______.

decrease by $16,000.

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

Assuming sales price remains constant, an increase in the variable cost per unit will ______ the contribution margin per unit.

decrease.

A company is currently selling 10,000 units of product for $40 per unit. The unit contribution margin is $27. The company believes that spending $50,000 on advertising will increase sales by 750 units per month and enable them to increase the selling price to $45 per unit. If this change is implemented, profits will ______.

increase by $24,000.

Goldin Corporation currently pays its salesperson a flat salary of $5,000 per month and is considering paying $20 per unit instead. Sales are currently 200 units per month. Goldin believes the compensation change will increase unit sales by 25%. The current contribution margin is $80 per unit. If the change is implemented, net operating income will ______.

increase by $4,000.

When the analysis of a change in profits only considers the costs and revenues that will change as the result of the decision, the decision is being made using ___ analysis.

incremental.

If the total contribution margin is less than the total fixed expenses, a ______ occurs.

net loss

At the break-even point ______.

net operating income is zero total revenue equals total cost

Company A has sales of $500,000, variable costs of $350,000, and fixed costs of $150,000. Company A has ______.

reached the break-even point a contribution margin equal to fixed costs

Profit equals:

(P × Q - V × Q) - fixed expenses.

Paula's Perfumes has a target profit of $4,000 per month. Perfume sells for $15.00 per bottle and variable costs are $13.50 per bottle. Fixed costs are $3,200 per month. The number of bottles that must be sold each month to earn the target profit is ______.

4,800.

Contribution margin:

becomes profit after fixed expenses are covered.

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

selling price, cost, volume

Elle's Elephant Shop sells giant stuffed elephants for $55 each. Each elephant has variable costs of $10 and total fixed costs are $700. If Ellie sells 35 elephants this month, ______.

total variable costs = $350 total sales = $1,925 profits = $875

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

volume, costs, and selling price.

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

The break-even point is the level of sales at which the profit equals

zero.

A company sold 20,000 units of its product for $20 each. Variable cost per unit is $11. Fixed expenses total $150,000. The company's contribution margin is ______.

$180,000.

Place the following items 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

Which of the following are assumptions of cost-volume-profit analysis? Multiple select question. Costs are linear and can be accurately divided into variable and fixed elements. Variable costs per unit increase over the relevant range of activity. In multi product companies, the sales mix is constant. Fixed costs per unit stay the same within the relevant range.

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

Company A produces and sells 10,000 units of its product for $10 per unit. Variable costs are $4 per unit and fixed costs total $30,000. A move to a larger facility would increase rent expense by $8,000, and allow the company to meet its demand for an additional 1,000 units. If the move is made, profits will ______.

Decrease by $2,000 New contribution margin = $6,000 (1,000 × ($10 - $4)) - $8,000 new cost = ($2,000) decrease in profits..

True or false: CVP analysis investigates company personnel policies, business values, and performance measures for a specific company.

False

True or false: Knowledge of previous sales is necessary when using incremental analysis to evaluate a change in profits.

False.

To simplify CVP calculations, it is assumed that ______ will remain constant.

selling price

Which of the following items are found above the contribution margin on a contribution margin format income statement?

Sales - Variable Expenses