Managerial Ch 5

Profit equals ________.

(P x Q - V x Q) - fixed expenses

CVP analysis focuses on how profits are affected by:

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

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

- selling price - volume - product mix

At the break-even point:

- total revenue equals total cost - net operating income is zero

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

1. Sales 2. Variable expenses 3. Contribution margin 4. Fixed expenses 5. Net operating income

To calculate the degree f operating leverage, divide ________ ________ by net operating income.

Blank 1: contribution Blank 2: margin

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

Blank 1: fixed Blank 2: profit, income, OR profits

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

Blank 1: margin Blank 2: safety

T/F? Cost structure refers to the relative portion of product and period costs in an organization.

False

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 x changes in sales - change in fixed expenses

The degree of operating leverage equals ________.

contribution margin divided by net operating income

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

contribution margin divided by sales

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

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 measure of how a percentage change in sales affects profits at any given level of sales is the ________.

degree of operating leverage

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

dollars

Total contribution margin equals ________.

fixed expenses plus net operating income

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

nothing

The contribution margin as a percentage of sales is referred to as the contribution margin or CM ________.

ratio

The variable expense ratio equals variable expenses divided by ________.

sales

The variable expense ratio is the ratio of variable expense to ________.

sales

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

total expense, and total fixed expense

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

total fixed expenses

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

unit volume

The contribution margin equals sales minus all _______ expenses.

variable

The contribution margin is equal to sales minus ________.

variable expenses

Variable expenses divided by sales is the calculation for the _________ _______ ration.

Blank 1: variable Blank 2: expense OR cost

Profit = (selling price per unit x quantity sold) - ( ________ expense per unit x quantity sold) - ________ expenses.

Blank 1: variable Blank 2: fixed

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

Blank 1: variable Blank 2: fixed