Managerial Accounting Chapter 5

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

Assumptions

Contribution margin ratio is equal to ________ divided by __________

Contribution Margin; Sales

CVP is the acronym for

Cost Volume Profit

Which of the following statements is correct?

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

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

Total Fixed Expenses

Terry's Trees has reached its break-even point and has a contribution margin ratio of 70%. For each $1 increase in sales ______.

Total contribution margin will increase by $0.70 Net operating income will increase by $0.70

CM ratio is equal to 1 - _______ ________ ratio

Variable Expense

The contribution margin is equal to sales minus ______.

Variable Expense

When making a decision using incremental analysis consider the ______.

change in cost resulting specifically from the decision change in sales dollars resulting specifically from the decision

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

contribution margin ÷ sales

Total contribution margin equals ______.

fixed expenses plus net operating income

Variable expenses ÷ Sales is the calculation for the _________ ratio

Variable Expense

A company reports the following for a sales volume of 200 units: $100,000 in sales and $80,000 in variable costs. If the break-even point is 200 units and the company sells 201 units, net profit will be

$100

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

Net Operating Income

Profit = (selling price per unit × quantity sold) - (_______ expense per unit × quantity sold) - ________ expenses

Variable; Fixed

The term "cost structure" refers to the relative proportion of ________ and ________ costs in an organization.

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

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

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

False

True or false: Knowledge of previous sales is necessary when using incremental analysis to evaluate a change in profits

False

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

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 are assumptions of cost-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 ordinarily used by those ______.

Inside the company only

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

A measure of how sensitive net operating income is to a given percentage change in sales dollars is known as operating

Leverage

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

Margin; Safety

The equation used to calculate the variable expense ratio using total values is total variable expenses divided by total ______.

Sales

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

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

Sales Volume

To simplify CVP calculations, it is assumed that ______ will remain constant.

Selling Price

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

Zero

Contribution margin is first used to cover _______ expenses. Once the break-even point has been reached, contribution margin becomes ______.

fixed; profit

The contribution margin statement is primarily used for ______.

internal decision making

Contribution margin ______.

becomes profit after fixed expenses are covered

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

Cost, Selling Price, Volume

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

Dollars

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

$0.35

Daisy's Dolls sold 30,000 dolls this year for $40 each. Each doll's variable cost was $19. If Daisy incurred $250,000 of fixed expenses, net operating income for the year is ______.

$380,000

If a company has a variable expense ratio of 35%, its CM ratio must be _______%

65%

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

Users can easily judge the impact on profits of changes in selling price, cost or volume when using an income statement constructed under the ______ approach.

Contribution Margin

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