Managerial Account - Chapter 6: Cost-Volume-Profit Analysis

Which of the following is NOT a method used for basic CVP analysis? a) Unit contribution margin b) Profit equation c) Contribution margin ratio d) Break-even analysis

d) Break-even analysis Reason: This is a form of CVP, not a method.

Contribution margin ______. Multiple choice question. a) covers fixed cost and profit b) is first used to cover variable expenses c) equals sales minus fixed expenses

a) covers fixed cost and profit Reason: Contribution margin is first used to cover fixed expenses. It is equal to sales - variable expenses.

Company A has fixed costs of $564,000 and wishes to earn a profit of $800,000 this year. If Company A has a contribution margin ratio of 62%, sales dollars needed to reach the target profit equals ______. Multiple choice question. a) $2,200,000 b) $3,000,000 c) $1,364,000 d) $913,880

$2,200,000 Reason: Sales = ($564,000 + $800,000)/0.62 = $2,200,000 Total Fixed Costs + Target Profit ----------------------------------- = Target Sales ($) Contribution Margin Ratio %

A company sells a product for $80 per unit and has a contribution margin ratio of 45%. Fixed costs total $180,000. Sales dollar to break even equals ______. Multiple choice question. a) $327,273 b) $500,000 c) $180,000 d) $400,000

$400,000 Reason: $180,000/45% = $400,000 Total Fixed Costs -------------------- = Break Even Sales Contribution Margin Ratio %

Select all that apply Contribution margin equals sales minus ______. - variable selling and administrative costs - variable manufacturing costs - fixed selling and administrative costs - fixed manufacturing overhead

- variable selling and administrative costs - variable manufacturing costs

The amount of each unit sold contributes towards fixed costs and profit is the (1)_______ (2)________.

1. contribution 2. margin

A company sells 15,000 units of product per month. The sales price per unit is $5.00, variable costs are $2.80 per unit and and total fixed costs equal $3,000. The contribution margin ratio is ______. Multiple choice question. a) 52% b) 40% c) 56% d) 44%

44% Sales price - variable cost = contribution margin $5.00 - $2.80 = $2.20 2.20 / 5 = .44(100) = 44% Reason: ($5.00 - $2.80) / $5.00 = 44%

Given fixed costs of $30,000, variable costs of $2.00 per unit, and a contribution margin of $5.00 unit,_________________ units have to be sold in order to break even. (Enter your answer as a whole number.)

Blank 1: 6000 or 6,000 Total fixed costs/ unit contribution = break even units 30,000/5.00

Given total fixed costs of $35,000 and a contribution margin ratio of 40%, $___________ of revenue must be earned to break even. (Enter your answer as a whole number.)

Blank 1: 87500 or 87,500 total fixed costs/contribution margin ratio % = break-even sales 35,000/40% = 87500

How much contribution margin is generated per dollar of sales revenue is the (1)______________ (2)____________ (3)________________ . (Enter only one word per blank.)

Blank 1: contribution Blank 2: margin Blank 3: ratio

The formula used to calculate the sales volume needed to achieve a target profit is ______. Multiple choice question. a - (Target profit + Fixed expenses)/Selling price per unit b - (Target profit + Fixed expenses)/Unit contribution margin c - (Variable expenses + Fixed expenses)/Selling price per unit d - (Target profit)/(Fixed expenses - Unit contribution margin)

b - (Target profit + Fixed expenses)/Unit contribution margin

Contribution margin equals sales minus _______. a. period variable costs only b. all variable costs c. all fixed costs d. all product costs e. product variable costs only

b. all variable costs

The contribution margin stated as a percentage of sales dollars is the ______. a) weighted-average contribution margin b) contribution margin per unit c) contribution margin ratio

c) contribution margin ratio

The amount that each unit sold contributes to fixed costs and profit is ______. a) variable cost per unit b) unit sales price c) unit contribution margin

c) unit contribution margin

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 that must be sold to meet the company's goal is ______. a) 6,958 b) 14,688 c) 7,730 d) 21,645

d) 21,645 Reason: Sales volume = ($470,000 + $222,640)/$32 = 21,645 fans. Formula: Total fixed costs + target profit ----------------------------------- = target units unit contribution margin

Methods that can be used to model the relationship between revenues, costs, profit, and volume include (1)_____ contribution margin method and the contribution (2)_____ (3)____ method.

1. unit 2. margin 3. ratio

Larson's Ltd. sells its product for $12.00 per unit. The contribution margin per unit is $8.00 and fixed costs are $75,000. Larson had to sell to ________ units to break even a) 18,50 b) 6,250 c) 3,750 d) 9,375

d) 9,375 Total Fixed Costs/Unit Contribution Margin = Break Even Units Reason: $75,000/$8.00 = 9,375 units

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 ______. $1,800,000 $1,200,000 $760,500 $1,170,000

$1,800,000 Reason: Sales = ($975,000 + $195,000)/0.65 = $1,800,000. Total Fixed Costs + Target Profit ------------------------------------ = Target Sales $ Contribution Margin Ratio

Given sales of 10,000 units per month, sales price per unit of $4.00, variable costs of $1.80 per unit and and total fixed costs of $5,000, the contribution margin ratio is ________________%. (Enter your answer as a whole number.)

55% Sales price - variable cost = contribution margin $4.00 - $1.80 = $2.20 2.20 / 4 = .55(100) = 55%