ch 3 sb

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

$1,630,000 - $935,000 = $695,000

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

$200,800 = ($90-$28) x Q - $320,000; $200,800 + 320,000 = $62Q; $520,800/$62 = 8,400 units

the degree of operating leverage

Contribution margin/Net operating income

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

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

decrease

Contribution margin is first used to cover ____expenses. Once the break-even point has been reached, contribution margin becomes____

fixed profit

The term "cost structure" refers to the relative proportion of

fixed and variable costs in an organization

Total contribution margin equals:

fixed expenses plus net operating income

When preparing a CVP graph, the horizontal axis represents

sales volume

The contribution margin is equal to sales minus

variable expenses

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 the end of the year, net operating income for the year will increase by

250,000x55%= $137,500

Marjorie's Mugs sold 300 mugs last year for $20 each. Variable costs were $7 per mug and total fixed costs were $1,700. Marjorie's Mugs' profit was

300x(20-7)-1,700= $2,200

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

305,000/40= 7,625 units

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

600,000x29%= $174,000

Contribution margin ratio is equal to

contribution margin divided by sales

The contribution margin equals sales minus:

all variable costs

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

$0.35

Blissful Blankets' target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets Blissful Blankets need to sell in order to achieve its target profit is

$520,000 = $21 x Q - $320,000; $520,000 + 320,000 = $21xQ; $840,000/$21 = 40,000 blankets

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

Budgeted sales are $982,000, break-even sales are $932,200, and fixed expenses are $429,000. The company's budgeted margin of safety in dollars is

$982,000 - $932,200 = $49,800

Sniffles, Inc. produces facial tissues. The company's contribution margin ratio is 77%. Fixed expenses are $240,400. To achieve a target profit of $930,000, Sniffles' sales rounded to the nearest dollar must be

($240,400 + $930,000)/0.77= $1,520,000

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

(1,452,000-958,320)/1,452,000= 34%

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

(26,000-17,000)x 22= $198,000

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

(4,000+3,200)/(15.00-13,50)= 4,800 bottles

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

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

A company sold 750 units with a contribution margin of $120 per unit. If the company has a break-even point of 450 units, the net operating income or (loss) is

(750-450)x120= $36,000

Chitter-Chatter sells phones and has set a target profit of $975,000. The contribution margin ratio is 65%, and fixed costs are $195,000. Sales dollars needed to earn the target profit total:

(975,000+195,000)/0.65= $1,800,000

profit equals

(P × Q) - (V × Q) - fixed expenses

A company with a high ratio of fixed costs:

-is more likely to experience a loss when sales are down than a company with mostly variable costs -is more likely to experience greater profits when sales are up than a company with mostly variable costs.

CVP analysis focuses on how profits are affected by

-selling price -mix of products sold -sales volume - total fixed costs -unit variable costs

Terry's Trees has reached its break-even point and has calculated its contribution margin ratio to be 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 the level of sales at which the profit equals

0

Gifts Galore had $189,000 of Sales Revenue from wrapping paper sales last year. Total contribution margin was $100,170 and total fixed expenses were $27,500. The contribution margin ratio was

100,170/189,000= 53%

Spice sells paprika for $9.00 per bottle. Each bottle incurs $2.43 in variable cost. Spice incurs annual fixed costs of $825,000. The variable expense ratio for paprika is

2.43/9= 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

245,050/845,000= 29%

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 increase the selling price to $45 per unit. If this change is implemented, profits will

An increase in selling price of $5 will increase the contribution margin $5 (from $27 to $32). The increased contribution margin of $74,000 ((10,750 x $32) - (10,000 x $27)) - the additional fixed costs of $50,000 = a profit increase of $24,000

A change in profits that occurs due to a change in sales and fixed expenses may be calculated as

CM ratio x Change in sales - Change in fixed expenses

Contribution margin:

becomes profit after fixed expenses are covered

Margin of safety in dollars is

budgeted (or actual) sales minus break-even sales

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

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

When constructing a CVP graph, the vertical axis represents:

dollars

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

equals

Cost structure refers to the relative portion of product and period costs in an organization.

false

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

false

The amount by which sales can drop before losses are incurred is the

margin of safety

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

incremental

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

net cont margin: 6,000(1,000x(10-4))-8000= decrease of $2,000

Operating leverage is a measure of how sensitive ______ is to a given percentage change in sales dollars

net operating income

The variable expense ratio is the ratio of variable expense to

sales

Place the following items in the correct order in which they appear on the contribution margin format income statement

sales variable expenses contribution margin fixed expenses net operating income

To prepare a CVP graph, lines must be drawn representing total revenue,

total expense, and total fixed expense

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

total fixed expenses

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: (35x10)= $350 profits: 35 x (55-10)-700= $875 total sales: 35x55= $1925