MGMT 201 Midterm 2

Which of the following are assumptions of cost-volume-profit analysis? A: In multi product companies, the sales mix is constant. B: Fixed costs per unit stay the same within the relevant range. C: Costs are linear and can be accurately divided into variable and fixed elements. D: Variable costs per unit increase over the relevant range of activity.

A and C

The break-even point calculation is affected by ____ A: Costs per unit B: Selling price per unit C: Sales Mix D: Number of batches produced

A, B, and C

CVP analysis focuses on how profits are affected by ______ A: break-even point B: Mix of products sold C: Unit Variable Costs D: Selling Price E: Sales Volume F: Total Fixed Costs

B, C, D, E, and F

The sales volume level at which profits equal zero is the ___

Break-even Point

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

The contribution margin equals sales minus all ______ expenses.

Variable

Variable expenses ÷ Sales is the calculation for the ___ ____ ratio

Variable Expense

The equation that should be used in setting a target selling price for a special order bulk sale that does not affect a company's normal sales is: selling price per unit = ____

Variable cost per unit + desired profit per unit

Contribution Margin Ratio Equation

(Sales - Variable expenses) / Sales

Unit Sales to Attain Target Profit Equation

(Target Profit + Fixed Expenses) / Unit CM

Costs are separated into variable and fixed categories when using the _____ approach.

Contribution

Net Operating Income Equation

Contribution Margin - Fixed Expenses

Degree of Operating Leverage Equation

Contribution Margin / Net Operating Income

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

Contribution Margin / Sales

What does CVP mean?

Cost Volume Profit

True or False If operating leverage is low, a small percentage increase in unit sales can produce a much larger percentage increase in net operating income.

False

Unit Sales to Break-even Equation

Fixed Expenses/ Unit CM

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

Leverage

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

Net Operating Income

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 relative proportions in which a company's products are sold is referred to as ___ ___

Sales Mix

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

Selling Price

Estimating the sales volume required to earn a given amount of net income is known as ____ ____ analysis

Target Profit

Margin of safety in dollars is ____

budgeted (or actual) sales minus break-even sales

Percentage Change in Net Operating Income Equation

degree of operating leverage * percentage change in sales

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

product mix, volume, and selling price