Chapter 2

An income statement constructed under the ____________ approach allows users to easily judge the impact on profits of changes in selling price, cost or volume

Contribution margin

The calculation of contribution margin ratio is:

Contribution margin/sales

Contribution margin ratio is equal to ____________ ____________ divided by ____________.

Contribution margin; sales

CVP is the acronym for

Cost volume profit

Candle central has $1440 of total variable expense for a sales level of 600 units and $2160 of total variable expense for a sales level of 900 units. If candle central sells 500 units:

The variable cost per unit is $2.40, total variable cost is $1200

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

Zero

Company A sold 200,000 units. Selling price is $7 per unit, contribution margin is $4 per unit, and the fixed expenses total $632,000. Company A's profit (loss) is:

$168,000

Lance, Inc. has sales of 9000 units. The contribution margin per unit is $32 and fixed costs total $120,000. Lance's profit is $____________.

$168,000

Marjorie's Mugs sold 300 mugs last year for $20 each. Variable costs were $7 per mug and total fixed costs were $1700. Majorie's Mugs' profit was:

$2200

Cakes by Jacki has $144,000 of fixed costs per year. The contribution margin ratio is 59%. The sales dollars to break even rounded to the nearest dollar equals:

$244,068

Pretty in pearls sold 95 necklaces last month. If variable cost per unit is $40 and fixed costs total $3085, the companies total variable cost was:

$3,800

Shanda's shoes sell for $95 per pair. If Shanda must sell a total of 284 pairs of shoes to break even, and a total of 450 pairs to achieve her target profit, sales dollars needed to earn the target profit equals:

$42,750

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

$55

A company needs to sell 90,000 units to reach the target profit of $180,000. If each unit sells for $7.50, the total sales dollars needed to reach the target profit is $____________.

$675,000

Company A has fixed costs of $564,000 and a contribution margin of 62%. Sales dollars to break even rounded to the nearest whole dollar equals:

$909,677

Profit equals:

(PxQ)-(VxQ)-fixed expenses

Given a sales price of $100, variable costs of $70 and a break even point in 500 units, net operating profit for sale on 501 units will be $____________.

30

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

A company 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

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

A contribution margin equal to fixed costs, reached the break even point

The contribution margin equals sales minus:

All variable costs

CVP analysis is based on some ____________ that may be violated in practice, but the tool is still generally useful

Assumptions

Contribution margin:

Becomes profit after fixed expenses are covered

Multiplying unit selling price times the number of units required to break even is one way to calculate:

Breakeven sales dollars

Which tool can be used to easily calculate the change in profit resulting from a change in sales price, sales volume, variable costs, or fixed costs?

CVP analysis

The calculation of contribution margin (CM) ratio is:

Contribution margin/sales

A company has reached its break even point when the contribution margin ____________ fixed expenses

Equals

True or false: The margin of safety is the excess of break even sales dollars over budgeted (or actual) sales dollars.

False

True or false: simple CVP analysis can be relied on for changes in volume outside the relevant range.

False

Place the following items in the correct order in which they appear on the contribution margin format income statement. Contribution margin, variable expenses, net operating income, sales, fixed expenses

Sales, variable expenses, contribution margin, fixed expenses, net operating income

To simplify CVP calculations, which of the following is assumed to remain constant?

Selling price

CVP analysis focuses on how profits are affected by:

Selling price, sales volume, mix of product sold, unit variable cost, total fixed costs

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

Selling price, volume, costs

Which of the following statements is correct? The risk of loss is not impacted by the margin of safety. The higher the margin of safety, the higher the risk of incurring a loss. The higher the margin of safety, the lower the risk of incurring a loss.

The higher the margin of safety, the lower the risk of incurring a loss.

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

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

$0.35

If a company has sales of $100,000 a contribution margin of $40,000, and fixed expenses of $50,000 the company has a:

$10,000 net operating loss

Bus for 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 needs to sell in order to achieve its target profit is:

40,000

Which of the following are assumptions of college volume profit analysis?

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

The contribution margin statement is primarily used for:

Internal decision making

The amount by which cells can drop before losses are incurred is the ____________ of ____________.

Margin of safety

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

Margin of safety

If the total contribution margin is less than the total fixed expenses, then a ____________ will occur.

Net loss

At the break even point:

Net operating income is zero, total revenue equals total cost

The variable expense ratio is the ratio of variable expense to:

Sales

Variable expenses/sales is the calculation for the ____________ ratio.

Variable expense

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

Variable expenses, sales

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

Volume, cost, selling price

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

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