Chapter 9

Batch-level costs may increase or decrease

When doing CVP analysis using the ABC method:

Contribution margin per unit is $6

if selling price per unit is $10, variable cost per unit is $4 and fixed costs per unit is $1, the:

Shows how costs, revenues, and profits change in response to changes in volume (output)

A CPV graph:

A decision tree (or decision table)

A structured approach to uncertainty/risk analysis that incorporates managerial actions, events, and outcomes (for example, the amount of profit generated during a period), is referred to as:

"Sales basket" approach

An alternative approach to the weighted-average approach to the construction of a short-term profit-planning model for the multi-product firm is referred to as the:

60/40 = 1.5

At a given volume level, Q, total sales revenue = $100, total variabel costs = $40, and total fixed cost =$20. At this volume level, the degree of operating leverage (DOL) is:

Total contribution margin (CM) equals total fixed costs, F

At the break-even point

Break-even in sales dollars

Break-even point in units multiplied by the selling price per unit equals:

Relatively high fixed costs

By definition, a firm with high operating leverage has:

Is a model of the short-term profit structure of an organization

CVP Analysis:

(3X2)=10 100/10=10

Fixed cost for the period is $100. Assume that a standard "basket" of products consists of 3 units of X and 2 units of Y. Both products (X and Y) have a contribution margin per unit of $2. The break-even point, in terms of number of "baskets" of product is:

60,000/(250-100)=400 X 250= $100000

Given a sales price of $250 per unit, variable cost of $100 per unit, and fixed costs of $60,000, the breakeven in dollars is

250-110=140X10 = 1400

Given a sales price of $250 per unit, variable cost of $110 per unit, and a break-even point of 800 units, the estimated profit if 810 units are sold is

Selling price per unit

On a CVP graph, the slope of the total revenue line equals

Selling price per unit

On a CVP graph, the slope of the total revenue line equals:

A measure of risk

Operating leverage is:

The extent to which fixed costs exist in the cost structure of an organization

Operating leverage refers to:

Contribution margin per unit

The amount by which operating profit changes for each unit change in sales is the:

First converting desired after-tax income to pretax dollar equivalents

The basic CVP model (without income taxes) can be expanded to include income tax consideration by:

Dividing fixed costs for period by the contribution margin ratio

The break-even point in dollars can be found by:

Operating profit is zero

The break-even point is defined as the point where:

Is simplified because the analysis is performed at the product-group level

the construction of a profit-planning model in conjunction with value-stream accounting:

Profit-volume

A graph that depicts (operating) profit as a function of changes in volume (units sold) is referred to as what type of graph?

Identifies risks in increasing fixed costs if volume fails; Can help a firm execute its strategy

CVP analysis

Indifference point

Given the choice of two options, one with high fixed cost and low unit variable cost (high-fixed-cost option) and the other with low fixed cost and high unit variable cost (low-fixed-cost option), the sales level where managers would be equally satisfied with either option is called the what?

sales mix

If a multiproduct company cannot reasonably allocate fixed costs to each product, then a constant __________ __________ must be assumed in order to build a single CVP model for profit-planning purposes

($600 + $480)/($7.50-$3.50)= $1,080/$4.00 per unit= 270 units

If fixed cost per week is $600, and selling price per unit is $7.50, with a variable cots per unit of $3.50, the number of units that must be sold to generate a pretax profit of $480 per week is:

10-7=3 3/10=30%

If selling price per unit is $10 and variable cost per unit is $7, then:

The break-even point in dollars is $500/($2/$10)

If the fixed cost per month is $500, the selling price per unit is $10, and the variable cost per unit is $8, then:

Profit exclusive of unusual or non recurring items before tax

In CVP analysis, the term operating profit refers to:

Costs are classified (i.e., grouped) by behavior (i.e., fixed vs. variable)

In a contribution income statement:

Equal to sales above the break-even point

Margin of safety (MOS) is:

Higher

The __________ the operating leverage, the greater the sensitivity of operating income to changes in sales volume

Divided by the Contribution margin per unit

The break-even point in terms of number of units (i.e., sales volume) equals fixed costs:

Divided by the contribution margin per unit

The break-even point in terms of number of units equals fixed costs:

What-if analysis

The calculation of an amount given different levels of a fact that influences that amount is:

Defined at each output level, Q

The degree of operating leverage (DOL) is:

Expected values for each decision option

The end product (information) obtained from a decision table/decision tree is a set of:

Contribution

The income statement used in conjunction with CVP (cost-volume-profit) analysis is called the __________ income statement

Output level (Sales mix)

The level of short-term profitability of an organization is a function of: sales volume, selling price per unit, variable cost per unit, total fixed costs, and:

Margin of safety in units/planned sales in units

The margin of safety ration is calculated as:

Sensitivity analysis

The name for a variety of methods that examine how an amount changes in response to changes in one or more factors used to predict that amount is:

The inclusion of activity-based costs rather than solely volume-related costs

The primary difference in a CVP model that incorporates ABC data, compared to a conventional CVP profit-planning model is:

Q(p-v)-F

The profit equation depicted in a Profit-Volume (PV) graph is:

Sales mix % based on physical units

The weighted-average contribution margin for a multi-product organization is calculated by weighting the contribution margin of each individual product by the product's:

Sales volume (in units) X contribution margin per unit

Total contribution margin for a given accounting period equals:

True

True or false: CVP analysis can be used to determine the most cost-effective trade off between different types of costs

False

True or false: Facility-level costs are treated differently under CVP analysis using an activity-based costing (ABC) approach than they are under the conventional approach to CVP

False

True or false: Only firms that compete on cost leadership need CVP analysis

Increases

When CVP analysis is applied using activity-based costing and batch sized is decreased, the number of units required to break-even or achieve a desired profit:

low

When comparing two products, the product with a relatively __________ margin of safety (MOS) ratio is the riskier of the two