Mgmt Acct Ch 5

A company sold 20,000 units of its product for $20 each. Variable cost per unit is $11. Fixed expenses total $150,000. The company's contribution margin is

$180,000 Explanation: Contribution margin = 20,000 x ($20-$11 → Cost per unit - cost per unit) = $180,000

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

$184,000 - $85,000 = $99,000

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:

$380,000Net operating income = 30,000 x ($40 x $19) - $250,000 = $380,000

Net operating income equals

(Unit sales - unit sales to break even) x unit contribution margin.

Cost-volume-profit (CVP)

- analysis that helps managers make many important decisions such as what products and services to offer, what prices to change, what marketing strategy to use, and what cost structure to maintain - Estimate how profits are affected by five factors - 1. Selling prices 2. Sales volume 3. Unit variable costs 4. Total Fixed costs 5. Mix of products sold

Given sales of $1,452,000, variable expenses of $958,320 and fixed expenses of $354,000, the contribution margin ratio is

34% ( ($1,452,000 - $958,320) ÷ $1,452,000 = 34% ) Explanation: Sales - Variable Expenses / Fixed Expenses $354,000 = 34%

A product has a selling price of $10 per unit, variable expenses of $6 per unit and total fixed costs of $35,000. If 10,000 units are sold, net operating income will be $

5000 Explanation: Selling price - Variable expenses per unit X units sold: (10-6) x 10000 - 35000 = 5000

Contribution margin ______.

becomes profit after fixed expenses are covered

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

contribution margin ratio (CM ratio)

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

fixed expenses , profit

Total contribution margin equals

fixed expenses plus net operating income

Which of the following items are found above the contribution margin on a contribution margin format income statement?

sales & variable expenses

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

total fixed expenses

At the break-even point ______.

total revenue equals total cost & net operating income is zero