BA 215

Given revenue of $900, variable costs of $600, net income of $50, and fixed costs of $250, the magnitude of operating leverage is ______.

6 $300 ÷ $50 = 6

Given an operating leverage of 4, a 15% increase in revenue will result in a ______% increase in profitability.

60%

If the sales price of a product is $10 per unit; the variable cost is $5 per unit; and fixed costs total $1,000, how many units must be sold to earn a profit of $2,000?

600

The margin of safety is the amount ______.

at which a company's sales can fall short and still break even

When calculating a percentage change, the ______ measure is the starting point.

base

The point at which contribution margin equals total fixed cost is called the ______.

break-even

The point at which profit equals zero is called the ______ point.

break-even

Changing the activity base ______.

can change either fixed or variable cost behavior

Revenue minus variable costs = _____ _____.

contribution margin

A company that has a margin of safety of 40% can incur a 40% ______.

decrease in budgeted sales and still break even

A company that has a margin of safety of 60% can incur a 60% ______.

decrease in budgeted sales and still break even

As activity level increases, fixed cost per unit ______

decreases

As activity level decreases, total fixed cost ______.

does not change

As activity level increases, variable cost per unit ______.

does not change

When a company uses a variable cost structure, a 15% change in sales will result in ______ increase or decrease in profitability

exactly a 15%

A company pays their sales staff a salary of $6,000 a month plus a 5% commission on sales. If sales for the month equals $12,000, the total cost of the sales staff for the month is ______.

$6,600 $6,000 + $12,000 × 5% = $6,600

If a product has a unit contribution margin of $12, a sales price of $20 and total fixed costs of $1,000, its variable cost per unit must be ______.

$8 Contribution Margin per unit = Sales Price per unit - Variable cost per unit.

If the contribution margin per unit is $100 and fixed costs total $1,000, how many units must be sold to earn a profit of $10,000?

($1,000 + $10,000) ÷ $100 = 110 units

If a company has budgeted sales of $10,000 and break-even sales of $4,000, the margin of safety is ______.

($10,000 - $4,000) ÷ $10,000 = 60%

Assume a company sold 900 units in Year 1 and 700 units in Year 2. The percentage change in units sold from Year 1 to Year 2 is ______.

(22.2%) (700 - 900) ÷ 900 = (22.2%)

If the contribution margin per unit is $200 and fixed costs total $1,000, how many units must be sold to earn a profit of $1,000?

10 ($1,000 + $1,000) ÷ $200 = 10 units

The sales price of a product is $100 per unit; the variable cost is $20 per unit; and fixed costs total $800. How many units must be sold to break even?

10 ($100N - $20N) - $800 = $0 N = $800 ÷ $80 or 10 units

Assume that a company's magnitude of operating leverage is 10. A 1% increase in revenue will lead to a(n) ______ increase in profitability.

10% 1% x 10 = 10%

The sales price of a product is $20 per unit; the variable cost is $5 per unit; and fixed costs total $1,500. A total of _____ units must be sold to break even.

100

If the contribution margin per unit is $5, variable costs are $7.50 per unit and fixed costs total $5,000, a total of _____ units must be sold to break even.

1000

If the sales price of a product is $10 per unit; the variable cost is $5 per unit; and fixed costs total $1,000, the company will earn a profit of $5 if _____ units are sold.

201

A company has a maintenance contract with a fixed fee of $1,200 per month plus $75 per hour for each maintenance hour used. In a month where 20 maintenance hours are used, the total maintenance cost is $ _____.

2700

A item with a sales price of $15 per unit and variable cost of $11 per unit has a contribution margin of $ _____ per unit.

4

If a company has budgeted sales of $15,000 and break-even sales of $9,000, the margin of safety is _____ %.

40

If the contribution margin per unit is $200 and fixed costs total $1,000, how many units must be sold to break even?

5

If the contribution margin per unit is $2, variable costs are $6 per unit and fixed costs total $1,000, how many units must be sold to break even?

500 $1,000 ÷ $2 = 500 units

If a company has budgeted sales of $20,000 and break-even sales of $5,000, the margin of safety is ______.

75%

Given revenue of $1,000, variable costs of $600, net income of $50, and fixed costs of $350, the magnitude of operating leverage is ______.

8 $400 ÷ $50 = 8

The sales price of a product is $20.00 per unit; the variable cost is $7.50 per unit; and fixed costs total $10,000. How many units must be sold to break even?

800

Fixed and variable costs always remain fixed or variable at all ranges of activity.

False They only remain fixed or variable within the relevant range.

Addams, Inc. has an operating leverage of 6 and Madison, Inc. has an operating leverage of 8. Which company will see the biggest impact of a 20% decrease in revenue?

Madison Because Madison has a higher operating leverage, it will suffer a higher (160%) decrease in profits when revenue decreases 20%.

The levels of activity over which a cost is defined as either fixed or variable is called the _____ _____.

relevant range

A cost that does not change in total as activity level changes is a(n) _____ cost.

fixed

The ultimate risk of undertaking a business project is committing to a ______ cost.

fixed

When the activity level changes, ______.

fixed cost per unit changes total fixed cost remains constant

The amount at which a company's sales can fall short and still break even is called the ______.

margin of safety

The amount at which a company's sales can fall short and still break even is called the ____ of _____.

margin; safety

A cost that has both a fixed and variable component is called a ______ cost.

mixed

Subtracting fixed costs from contribution margin equals ______.

net income

To magnify small changes in revenue into dramatic changes in profitability, managers apply _____ leverage.

operating

The ability of fixed costs to magnify changes in sales to create disproportionate changes in profitability is called ______.

operating leverage

Shifting the cost structure from fixed to variable cost, ______ the potential for profits.

reduces the level for risk and

The levels of activity over which a cost is defined as either fixed or variable is called the ______ range.

relevant

The possibility that sacrifices may exceed benefits is called _____.

risk

The possibility that sacrifices may exceed benefits is called ______.

risk

When the activity level changes, ______.

total variable cost changes variable per unit remains constant

Mixed costs have ______ components.

variable and fixed

A risk can be avoided by substituting _____ costs for a(n) _____ cost.

variable; fixed

The activity base is used to determine ______.

whether a cost is defined as fixed or variable

As activity level decreases, total variable cost ______.

will decrease