managerial accounting ch 5

Profit equals ______.

(P × Q) - (V × Q) - fixed expenses

The contribution margin equals sales minus ______.

all variable costs

When constructing a CVP graph, the vertical axis represents ______.

dollars

Profit = (selling price per unit × quantity sold) - (_____expense per unit × quantity sold) - expenses.

variable fixed

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 ______.

$2,200

Daisy's Dolls sold 30,000 dolls this year. Each doll sold for $40 and had a variable cost of $19. Fixed expenses were $250,000. Net operating income for the year is ______.

$380,000

Vivian's Violins has sales of $326,000, contribution margin of $184,000 and fixed costs total $85,000. Vivian's Violins net operating income is ______.

$99,000

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?

2,800

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 ______.

40,000

A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. The BREAK-EVEN point in unit sales is ______.

7,625

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 ______.

8,400

True or false: Account analysis involves a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation.

False

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

False

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: Without knowing the future, it is best to have a cost structure with high variable costs.

False

Which of the following statements is correct?

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

True or false: The sales mix must be taken into consideration when calculating the break-even point for more than one product due to different selling prices, costs, and contribution margins among the products.

True

Cost behavior is considered linear whenever ______.

a straight line approximates the relationship between cost and activity

Contribution margin ______.

becomes profit after fixed expenses are covered

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

cm ratio × change in sales - change in fixed expenses

The degree of operating leverage = ______.

contribution margin ÷ net operating income

The calculation of contribution margin (CM) ratio is ______.

contribution margin ÷ sales

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

contribution margin; sales

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

costs selling price volume

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 ______.

decrease by $2,000

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 a company produces and sells multiple products ______.

each product most likely has different costs a change in the sales mix will most likely change the break-even point each product most likely has a unique contribution margin

Estimating the fixed and variable components of a mixed cost using the _____ approach involves a detailed analysis of what cost behavior should be. (Enter only one word per blank.)

engineering

A company's current sales are $300,000 and fixed expenses total $225,000. The contribution margin ratio is 30%. The company has decided to expand production which is expected to increase sales by $70,000 and fixed expenses by $15,000. If these results occur, net operating income will ______.

increase by $6,000

A company currently has sales of $700,000 and a contribution margin ratio of 45%. As a result of increasing advertising expense by $8,000, the company expects to increase sales to $735,000. If this is done and these results occur, net operating income will ______.

increase by $7,750

A company with a high ratio of fixed costs ______.

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

The best fitting line minimizes the sum of the squared errors when using ______.

least-square regression

A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called ______.

least-squares regression

It makes sense to perform a high-low or regression analysis if a scattergraph plot reveals _____ _____ behavior.

linear cost

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

margin safety

The relative proportions in which a company's products are sold is referred to as _____ _____.

sales mix

The term used for the relative proportion in which a company's products are sold is ______.

sales mix

The break-even point calculation is affected by ______.

sales mix costs per unit selling price per unit

When preparing a CVP graph, the horizontal axis represents ______.

sales volume

An increase in sales will increase net operating income by a multiple of that increase in sales. The multiple is known as ______.

the degree of operating leverage

The rise-over-run formula for the slope of a straight line is the basis of ______.

the high-low method

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

total expense, and total fixed expense

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 costs = $350 total sales = $1,925 profits = $875

CVP analysis focuses on how profits are affected by ______.

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

When using the high-low method, the slope of the line equals the _____ cost per unit of activity. (Enter only one word per blank.)

variable

The term "cost structure" refers to the relative proportion of _____ and _____ costs in an organization. (Enter only one word per blank.)

variable fixed