ARE 119 Ch 3

Assume the following cost information for Fernandez Company: Selling price $180 per unit Variable costs $60 per unit Total fixed costs $90,000 Tax rate 40% What minimum volume of sales dollars is required to earn an after-tax net income of $40,000? (Do not round interim calculations and round the final answer to the nearest dollar.)

$235,000 Minimum volume of sales dollars is required = [$90,000 + ($40,000 / 0.6)] / [($180 - $60) / $180] = $235,000

Tally Corp. sells softwares during the recruiting seasons. During the current year, 14,000 software packages were sold resulting in $460,000 of sales revenue, $110,000 of variable costs, and $50,000 of fixed costs. Contribution margin per software is ________.

$25.00 ($460,000 − $110,000) / 14,000 = $25.00 per software

Stones Manufacturing sells a marble slab for $1,100. Fixed costs are $33,000, while the variable costs are $550 per slab. The company currently plans to sell 210 slabs this month. What is the margin of safety assuming 85 slabs are actually sold? (Round interim calculations and final calculations to the nearest whole number.)

$27,500 Breakeven in number of slabs = $33,000 / ($1,100 − $550) = 60 slabs Actual sales 85 slabs × $1,100 = $93,500 Breakeven sales 60 slabs × $1,100 = $66,000 Margin of safety 25 slabs $27,500

Fixed costs equal $16,000, unit contribution margin equals $35, and the number of units sold equal 1,300. Operating income is ________.

$29,500 (1,300 × $35) − $16,000 = $29,500

Sales total $400,000 when variable costs total $300,000 and fixed costs total $80,000. The breakeven point in sales dollars is ________. (Round interim calculations to two decimal places and the final answer to the nearest dollar.)

$320,000 Contribution margin percentage = ($400,000 − $300,000) / $400,000 = 25%; BE sales = $80,000 / 0.25 = $320,000

If Beta Corp's net income is $230,000 and the tax rate is 40%, then the company's planned operating income is ________.

$383,333 Operating income = $230,000 / (0.6) = $383,333

If the breakeven point is 1,300 units and each unit sells for $50, then ________.

$65,000 1,300 × $50 = $65,000 of BE sales

Ruben is a travel agent. He intends to sell his customers a special round-trip airline ticket package. He is able to purchase the package from the airline for $160 each. The round-trip tickets will be sold for $200 each and the airline intends to reimburse Ruben for any unsold ticket packages. Fixed costs include $5,200 in advertising costs. How many ticket packages will Ruben need to sell to break even?

130 packages $200X - $160X - $5,200 = 0; X = 130

If the contribution margin ratio is 0.25, targeted operating income is $50,000, and targeted sales volume in dollars is $260,000, then total fixed costs are ________.

15,000 (X + $50,000)/0.25 = $260,000; X = 15,000

Katrina's Bridal Shoppe sells wedding dresses. The average selling price of each dress is $1,100, variable costs are $500, and fixed costs are $100,000. How many dresses are sold when operating income is zero?

167 dresses $1,100N - $500N - $100,000 = 0; $600N = $100,000; N = 167 dresses

Burgandy Manufacturing produces a single product that sells for $80. Variable costs per unit equal $35. The company expects total fixed costs to be $90,000 for the next month at the projected sales level of 2,500 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. What is the current breakeven point in terms of number of units?

2,000 units $80X − $35X − $90,000 = 0; X = 2,000 units

Stephanie's Bridal Shoppe sells wedding dresses. The average selling price of each dress is $1,200, variable costs are $700, and fixed costs are $100,000. How many dresses must the Bridal Shoppe sell to yield after-tax net income of $20,000, assuming the tax rate is 40%?

267 units 1,200N - $700N - $100,000 = $20,000 / (1 - 0.4); $500N - $100,000 = $33,333; N = 267 units

SaleCo sells 8,400 units resulting in $120,000 of sales revenue, $35,000 of variable costs, and $45,000 of fixed costs. The contribution margin percentage is ________.

70.83% ($120,000 − $35,000) / $120,000 = 70.83%

Rosewood company sells wooden carvings for $300 each. The direct materials cost per unit is $160 and the direct labor is 2 hours at a rate of $26 per hour. Manufacturing overhead is applied on the basis of labor hours at a rate of $36 per hour. Rosewood makes and sells 1,000 units per period. How many units must Rosewood sell to breakeven?

818 units Unit Contribution Margin 300 - 160 - (2 x $26) = $88 Fixed cost per period = (2 x $36) x 1,000 units = $72,000 Breakeven = FC / CM = $72,000 / $88 = 818 units

________ is the process of varying key estimates to identify those estimates that are the most critical to a decision.

A sensitivity analysis

Which of the following is the mathematical expression of contribution margin ratio?

Contribution margin ratio = Contribution margin percentage × Revenues (in dollars)

Craylon Manufacturing produces a single product that sells for $140. Variable costs per unit equal $35. The company expects total fixed costs to be $60,000 for the next month at the projected sales level of 1,500 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. One alternative is to increase advertising expenses by $11,000. What is the effect on operating income with the increase of advertising expenses?

Operating income will decrease by $11,000. Operating income without advertising expenses = $140 - 35 = $105 × 1,500 = 157,500 - 60,000 = $97,500 Operating income with advertising expenses = 157,500 - (60,000 + 11,000) = $86,500

Kanga Company is considering two different production plans. Option one: Fixed costs of $10,000 and a breakeven point of 500 units. Option two: Fixed costs of $20,000 and a breakeven point of 700 units. Which option should Kanga choose if it is expecting to produce 600 units?

Option one.

All else being equal, a reduction in selling price will ________.

reduce operating income

All else being equal, an increase in advertising expenditures will ________.

reduce operating income

The breakeven point is the activity level where ________.

revenues equal the sum of variable and fixed costs Revenue - Variable Costs - Fixed Costs = Operating income, thus; Revenue = Variable Costs + Fixed Costs

Contribution margin equals ________.

revenues minus variable costs

The contribution margin per unit equals ________.

selling price - variable costs per unit

The breakeven point decreases if ________.

the total fixed costs decrease

If unit outputs exceed the breakeven point ________.

there will be a profit

Family Furniture sells a table for $900. Its fixed costs are $30,000, while its variable costs are $600 per table. It currently plans to sell 175 tables this month. What is the budgeted revenue for the month assuming that Family Furniture sells 175 tables?

$157,500 Budgeted revenue = 175 × $900 = $157,500

When fixed costs are $70,000 and variable costs are 60% of the selling price, then breakeven sales are ________. (Round the final answer to the nearest dollar.)

$175,000 $70,000 / (1 − 0.6) = $175,000 in BE sales

If the contribution margin ratio is 0.60, targeted operating income is $50,000, and fixed costs are $75,000, then sales volume in dollars is ________. (Round the final answer to the nearest dollar.)

$208,333 X = (50,000 + 75,000)/ 0.60; X = $208,333

Firebird Ltd. sells packaged birdseed for $6.00 per package. Variable product costs are $3.00 per package. Fixed costs are $12,000 per period. How many packages must Firebird sell to earn a target operating income of $7,900?

6,633 units. Quantity required = (fixed costs + target OpInc) / CM per unit Q = ($12,000 + $7,900) / ($6.00 - $3.00) = 6,633 units.

Globus Autos sells a single product. 8,000 units were sold resulting in $83,000 of sales revenue, $21,000 of variable costs, and $10,000 of fixed costs. If Globus reduces the selling price by $1.20 per unit, the new margin of safety is:

6,911 $9.18 - $2.63 = $6.55 New breakeven = $10,000/ $6.55 = 1,089 (rounded) 8,000 units sold - 1,089 breakeven units = 6,911 MOS units (rounded)

What is the breakeven point in units, assuming a product's selling price is $300, fixed costs are $18,000, unit variable costs are $20, and operating income is $6,000?

65 units Unit contribution margin = $300 − $20 = $280. Breakeven point in units = $18,000 / $280 = 65 units

Tony Manufacturing produces a single product that sells for $80. Variable costs per unit equal $50. The company expects total fixed costs to be $82,000 for the next month at the projected sales level of 2,800 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. Suppose that management believes that a 14% reduction in the selling price will result in a 14% increase in sales. If this proposed reduction in selling price is implemented ________.

operating income will decrease by $23,990 Reduction in revenues = $80 × 14% = $11.2 × 2,800 units = ($31,360) Increase in contribution = 2,800 units × 14% = 392 units × ($68.8 − $50) = $23,990 Change in operating income ($7,370)

Assume only the specified parameters change in a CVP analysis. The contribution margin percentage increases when ________.

variable costs per unit decrease

When a greater proportion of costs are fixed costs, then ________.

when demand is low the risk of loss is high

The breakeven point is .

where contribution margin equals fixed costs

In CVP analysis, focusing on target net income rather than operating income ________.

will not change the breakeven point

Craylon Manufacturing produces a single product that sells for $130. Variable costs per unit equal $30. The company expects total fixed costs to be $60,000 for the next month at the projected sales level of 1,200 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. Suppose that management believes that a $12,000 increase in the monthly advertising expense will result in a considerable increase in sales. Sales must increase by ________ to justify this additional expenditure.

120 units to cover the expenditure $12,000/($130 − $30) = 120 units to cover the expenditure

Slickware sells porcelain cups. The breakeven point is 5,000 units. The variable cost per unit is $12 and the fixed costs are $20,000. What is the selling price?

16 The contribution margin equals fixed costs at breakeven. Therefore $20,000/5,000 units = $4 CM per unit. VC = $12 so selling price must be $16.

Which of the following statements is true?

Managers can lower operating risk by changing fixed costs to variable costs in the long-term.

Which of the following is true of net income?

Net income is operating income plus nonoperating revenues minus nonoperating costs minus income taxes.

Which of the following is true about the assumptions underlying basic CVP analysis?

Only selling price, variable cost per unit, and total fixed costs are known and constant.

The controller at TellCo is examining her books. She determines that at the breakeven point of 5,000 units, variable costs total $4,000 and fixed costs total $7,000. Therefore, 5,001st unit sold will contribute ________ to profits. (Round the final answer to the nearest cent.)

$1.40 Fixed costs of $7,000/5,000 units = Contribution Margin of $1.40 per unit.

If selling price per unit is $55, variable costs per unit are $25, total fixed costs are $24,000, the tax rate is 35%, and the company sells 7,000 units, net income is ________.

$120,900 Net income = [(($55 − $25) × 7,000) − $24,000] × (1.0 − 0.35) = $120,900

Orion Company sells several products. Information of average revenue and costs is as follows: Selling price per unit $23 Variable costs per unit: Direct material $4 Direct manufacturing labor $1.60 Manufacturing overhead $0.40 Selling costs $2.10 Annual fixed costs $100,000 The company sells 12,000 units at the end of the year. The contribution margin per unit is ________.

$14.90 ($23 − $4 − $1.60 − $0.40 − $2.10) = $14.90

Bell Company sells several products. Information of average revenue and costs is as follows: Selling price per unit $33.00 Variable costs per unit: Direct material $6.00 Direct manufacturing labor $1.50 Manufacturing overhead $0.30 Selling costs $2.25 Annual fixed costs $113,000 The company sells 10,000 units. The contribution margin per unit is ________.

$22.95 Contribution margin per unit = $33.00 − $6.00 − $1.50 −$0.30 − $2.25 = $22.95

Frazer Corp sells several products. Information of average revenue and costs is as follows: Selling price per unit $28.5 Variable costs per unit: Direct material $6.00 Direct manufacturing labor $1.45 Manufacturing overhead $0.85 Selling costs $2.60 Annual fixed costs $125,000 What is the operating income earned if the company sells 20,000 units?

$227,000 $28.5 - $6.00 − $1.45 − $0.85 - $2.60 = $17.6 × 20,000 = $352,000 Operating income = $352,000 - $125,000 = $227,000

Ruben is a travel agent. He intends to sell his customers a special round-trip airline ticket package. He is able to purchase the package from the airline for $170 each. The round-trip tickets will be sold for $200 each and the airline intends to reimburse Ruben for any unsold ticket packages. Fixed costs include $5,500 in advertising costs. What is the contribution margin per ticket package?

$30 $200 - $170 = $30

SaleCo sells 11,000 units resulting in $110,000 of sales revenue, $50,000 of variable costs, and $45,000 of fixed costs. To achieve $150,000 in operating income, sales must total ________. (Round intermediate calculations to two decimal places and the final answer to the nearest dollar.)

$357,500 ((110,000 - 50,000) / 110,000) = 55% ($150,000 + $45,000) / 55% = $357,500 in sales

Ruben intends to sell his customers a special round-trip airline ticket package. He is able to purchase the package from the airline carrier for $170 each. The round-trip tickets will be sold for $200 each and the airline intends to reimburse Ruben for any unsold ticket packages. Fixed costs include $5,140 in advertising costs. For every $27,000 of ticket packages sold, operating income will increase by ________.

$4,050 $27,000 × [($200 - $170 / $200)] = $4,050

The Marietta Company has fixed costs of $75,000 and variable costs are 75% of the selling price. To realize operating income of $10,000 from sales of 80,000 units, the selling price per unit ________. (Round the answer to the nearest cent.)

$4.25 per unit Breakeven sales = ($75,000 + $10,000) / 0.25 = $340,000 Selling price = $340,000 / 80,000 units = $4.25 per unit

Blistre Company operates on a contribution margin of 30% and currently has fixed costs of $550,000. Next year, sales are projected to be $3,100,000. An advertising campaign is being evaluated that costs an additional $120,000. How much would sales have to increase to justify the additional expenditure?

$400,000 Required sales = $120,000 / 0.3 = $400,000

Quality Stores, Inc., sells several products. Information of average revenue and costs is as follows: Selling price per unit $23 Variable costs per unit: Direct material $6 Direct manufacturing labor $1.90 Manufacturing overhead $0.40 Selling costs $2 Annual fixed costs $96,000 The revenues that the company must earn annually to make a profit of $144,000 are ________. (Round the final answer to the nearest dollar.)

$434,646 Desired sales = ($96,000 + $144,000) / 0.55 = $434,646

Katrina's Bridal Shoppe sells wedding dresses. The average selling price of each dress is $1,200, variable costs are $400, and fixed costs are $110,000. What is Katrina's operating income when 200 dresses are sold?

$50,000 200($1,200) - 200($400) - $110,000 = $50,000

The following information is for High Corp: Selling price $60 per unit Variable costs $40 per unit Total fixed costs $130,000 If targeted operating income is $50,000, then targeted sales revenue is ________. (Round the final answer to the nearest dollar.)

$540,000 ($130,000 + $50,000) / [($60 − $40) / $60] = $540,000

Zirconia Fantasy sells only necklaces. 11,000 units were sold resulting in $270,000 of sales revenue, $80,000 of variable costs, and $40,000 of fixed costs. The breakeven point in total sales dollars is ________.

$56,843 $40,000 / ($270,000 - 80,000) x 270,000 = $56,843 (rounded up)

Tally Corp. sells software during the recruiting seasons. During the current year, 10,000 software packages were sold resulting in $470,000 of sales revenue, $130,000 of variable costs, and $48,000 of fixed costs. If sales increase by $80,000, operating income will increase by ________. (Round interim calculations to two decimal places and the final answer to the nearest whole dollar.)

$57,872 Price = $470,000 / 10,000 = $47.00 Sales in software packages = $80,000 / $47.00 = 1,702.13 software packages Operating income increase = 1,702.13 software packages × $34.00 per = $57,872

Globus Autos sells a single product. 8,000 units were sold resulting in $83,000 of sales revenue, $21,000 of variable costs, and $20,000 of fixed costs. If variable costs decrease by $1.00 per unit, the new margin of safety is ________. (Round intermediate calculations to the nearest cent.)

$59,190 Variable cost per unit = $21,000 / 8,000 = $2.63 Contribution margin percentage = [$10.38 − ($2.63 − $1.00)] / $10.38 = 0.84 New breakeven point = [$10.38 − ($2.63 − $1.00)] / $10.38 = 0.84; $20,000 / 0.84 = $23,810 Old breakeven point = $10.38 - 2.63 = $8 / $10.38 = 1; $20,000 / 1 = $20,000 Margin of safety = $83,000 - $23,810 = $59,190

Pacific Company sells only one product for $12 per unit, variable production costs are $3 per unit, and selling and administrative costs are $1.70 per unit. Fixed costs for 11,000 units are $6,000. The operating income is ________ when 11,000 units are sold.

$6.75 per unit Operating income = $12 − $3 − $1.70 - ($6,000 / 11,000) = $6.75

Frazer Corp sells several products. Information of average revenue and costs is as follows: Selling price per unit $28.50 Variable costs per unit: Direct material $6.00 Direct manufacturing labor $1.45 Manufacturing overhead $0.85 Selling costs $2.50 Annual fixed costs $135,000 If the company decides to lower its selling price by 14.25%, but continues to sell 16,000 units, the operating income is reduced by ________.

$64,960 $28.50 × 14.25% = 4.06. Therefore the new selling price is $24.44 ($28.50 - $4.06). Contribution = ($24.44 - $6.00 − $1.45 − $0.85 - $2.50) × 16,000 = $218,240 Operating income = $218,240 - $135,000 = $83,240.

Sparkle Jewelry sells 800 units resulting in $9,000 of sales revenue, $3,000 of variable costs, and $1,500 of fixed costs. Contribution margin per unit is ________. (Round the final answer to the nearest cent.)

$7.50

Family Furniture sells a table for $950. Its fixed costs are $2,500, while its variable costs are $500 per table. It currently plans to sell 180 tables this month. What is the budgeted operating income for the month assuming that Family Furniture sells 180 tables?

$78,500 Budgeted operating income = $171,000 − [(180 × $500) + $2,500] = $171,000 − $92,500 = $78,500

Sparkle Jewelry sells 500 units resulting in $10,000 of sales revenue, $4,000 of variable costs, and $1,500 of fixed costs. Calculate the variable cost per unit. (Round the final answer to the nearest cent.)

$8.00

Sparkle Jewelry sells 800 units resulting in $85,000 of sales revenue, $32,000 of variable costs, and $26,000 of fixed costs. The number of units that must be sold to achieve $41,000 of operating income is ________.

1,012 unit ($85,000 − $32,000) / 800 = $66.25The number of units that must be sold to achieve $41,000 of operating income = ($26,000 + $41,000) / $66.25 = 1,012 units

Assume the following cost information for Fernandez Company: Selling price $200 per unit Variable costs $60 per unit Total fixed costs $80,000 Tax rate 30% What is the number of units that must be sold to earn an after-tax net income of $50,000? (Do not round interim calculations and round the final answer to the nearest unit.)

1,082 units Required number of units = [$80,000 + ($50,000 / 0.7)] / ($200 - $60) = 1,082 units

Lights Manufacturing produces a single product that sells for $130. Variable costs per unit equal $55. The company expects total fixed costs to be $100,000 for the next month at the projected sales level of 1,300 units. What is the current breakeven point in terms of number of units?

1,334 units $100,000/($130 − $55) = 1,334 units

Tony Manufacturing produces a single product that sells for $100. Variable costs per unit equal $45. The company expects total fixed costs to be $78,000 for the next month at the projected sales level of 3,000 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. Suppose management believes that a $85,000 increase in the monthly advertising expense will result in a considerable increase in sales. Sales must increase by ________ to justify this additional expenditure?

1,546 $100X − $45X − $85,000 = 0; X = 1,546 units to cover the expenditures

Sky High sells helicopters. During the current year, 130 helicopters were sold resulting in $840,000 of sales revenue, $260,000 of variable costs, and $350,000 of fixed costs. The number of helicopters that must be sold to achieve $320,000 of operating income is ________.

151 Number of helicopters to be sold to achieve an operating income of $320,000 = ($350,000 + $320,000) / $4,461.54 = 151 units

Sales of Blistre Autos are 380,000, variable cost is 230,000, fixed cost is 90,000 tax rate is 40%. Calculate the operating leverage of the company.

2.50 times Operating income $380,000 - $230,000 - $90,000 = $60,000 Operating leverage ($380,000 - $230,000)/$60,000 = 2.50 times

Slickware sells porcelain cups. The breakeven point is 5,000 units. The variable cost per unit is $18 and the fixed costs are $20,000. What is the contribution margin at 5,000 units?

20,000

If the contribution margin ratio is 0.60, targeted operating income is $95,000, and targeted sales volume in dollars is $530,000, then the degree of operating leverage is ________.

3.35 0.60 = X / $530,000 = $318,000 contribution. Operating leverage = $318,000 / $95,000 = 3.35

Dr. Charles Hunter, MD, performs a certain outpatient procedure for $1,300. His fixed costs are $24,000 per month and his variable costs are $500 per procedure. Dr. Hunter currently plans to perform 400 procedures this month. What is the breakeven point for the month assuming that Dr. Hunter plans to perform the procedure 400 times?

30 times $1,300N - $500N - $24,000 = 0; $500N = $24,000; N = 30 times

Sparkle Jewelry sells 600 units resulting in $75,000 of sales revenue, $32,000 of variable costs, and $26,000 of fixed costs. Breakeven point in units is ________. (Round to the nearest whole unit.) A) 447 units B) 684 units C) 810 units D) 363 units

363 Contribution margin per unit = ($75,000 − $32,000) / 600 = $71.67 Breakeven point = $26,000 / $71.67 = 363 units

How many units would have to be sold to yield a target operating income of $26,000, assuming variable costs are $27 per unit, total fixed costs are $2,000, and the unit selling price is $32?

5,600 units Desired sales = ($2,000 + $26,000) / ($32 − $27) = 5,600 units

Bell Company sells several products. Information of average revenue and costs is as follows: Selling price per unit $29 Variable costs per unit: Direct material $6 Direct manufacturing labor $1.75 Manufacturing overhead $0.25 Selling costs $2 Annual fixed costs $111,000 The company sells 13,000 units. What is the proportion of variable costs to total costs?

53.94% Total variable costs = $6 + $$1.75 + $0.25 + $2 = $10 × 13,000 = $130,000 Total costs = $130,000 + $111,000 = $241,000. Variable cost proportion = $130,000 / $241,000 = 53.94%

Quality Stores, Inc., sells several products. Information of average revenue and costs is as follows: Selling price per unit $20 Variable costs per unit: Direct material $4 Direct manufacturing labor $1.80 Manufacturing overhead $0.4 Selling costs $3 Annual fixed costs $96,000 What is the contribution margin percentage? (Round your answer to the nearest whole percent.)

54% ($20 − $4 − $1.80 − $0.4 − $3) / 20 = 54%

Ruben is a travel agent. He intends to sell his customers a special round-trip airline ticket package. He is able to purchase the package from the airline for $140 each. The round-trip tickets will be sold for $230 each and the airline intends to reimburse Ruben for any unsold ticket packages. Fixed costs include $5,500 in advertising costs. How many ticket packages will Ruben need to sell in order to achieve $60,000 of operating income?

728 $230X - $140X - $5,500 = $60,000; X = 728

Sky High sells helicopters. During the current year, 130 helicopters were sold resulting in $820,000 of sales revenue, $250,000 of variable costs, and $345,000 of fixed costs. Breakeven point in units is ________.

79 units Contribution margin per unit = ($820,000 - $250,000) / 130 = $570,000 / 130 = $4,384.62 per unit. Breakeven point = $345,000 / $4,384.62 = 79 units

The following information is for High Corp: Selling price $60 per unit Variable costs $40 per unit Total fixed costs $135,000 The number of units that High Corp must sell to reach targeted operating income of $25,000 is ________. (Round up to the nearest unit.)

8,000 units ($135,000 + $25,000)/($60 − $40) = 8,000 units

Breakeven point in units is ________.

fixed costs divided by contribution margin per unit

One of the first steps to take when using CVP analysis to help make decisions is ________.

identifying the variable and fixed costs

Which of the following will increase a company's breakeven point?

increasing variable cost per unit

In a company with low operating leverage, ________.

less risk is assumed than in a highly leveraged firm

If a company is planning to reduce the selling price, they must believe that ________.

more units will be sold

Assume only the specified parameters change in a cost-volume-profit analysis. If the contribution margin increases by $6 per unit, then ________.

operating income increases by $6 per unit

At breakeven point, ________.

operating income is equal to zero

Managers use cost-volume-profit (CVP) analysis to ________.

to study the behavior of and relationship among the elements such as total revenues, total costs, and income

If breakeven point is 1,000 units, each unit sells for $31, and fixed costs are $30,000, then on a graph the ________.

total revenue line and the total cost line will intersect at $31,000 of revenue $(1,000 x 31) = $31,000

The contribution income statement highlights ________.

variable and fixed costs

The selling price per unit less the variable cost per unit is the ________.

contribution margin per unit

Orion Company sells several products. Information of average revenue and costs is as follows: Selling price per unit $23 Variable costs per unit: Direct material $4 Direct manufacturing labor $1.70 Manufacturing overhead $0.40 Selling costs $2 Annual fixed costs $100,000 The company sells 12,000 units at the end of the year. If direct labor and direct material costs increase by $1 each, contribution margin ________.

decreases by $24,000 ($23 − $5 − $2.70 − $0.40 − $2) × 12,000 = $154,800. The previous contribution margin was $178,800 which means it decreased by $24,000

The planned operating income is calculated by ________.

dividing net income by 1 − tax rate

The breakeven point revenues is calculated by dividing ________.

fixed costs by contribution margin percentage

Which of the following is true of cost-volume-profit analysis?

The theory assumes that units manufactured equal units sold.

In the graph method of CVP analysis, ________.

The total revenue line starts at the origin and the total costs line starts at the fixed intercept.

Which of the following is an assumption of CVP analysis?

Total costs can be divided into a fixed component and a component that is variable with respect to the level of output.

Which of the following is true of CVP analysis?

Total revenues and total costs are linear in relation to output units.

Sensitivity analysis is ________.

a way of determining what will happen if assumptions change

A revenue driver is defined as ________.

any factor that affects revenues

The margin of safety is the difference between ________.

budgeted revenues and breakeven revenues

The contribution margin income statement ________.

can be used to predict operating income at different levels of activity