Accounting 2020 module 4

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

$.35

what is the contribution margin if a company sales 20K units for $20 per unit. The variable cost per unit is $11 and fixed expense is $150K?

$180,000

Sales and variable expenses can be expressed on a ____

per unit basis

Variable expenses ÷ Sales

Variable expense ratio

net operating income

contribution margin - fixed expenses

Net Operating Income (NOI)

(unit sales - unit sales to break even) × unit contribution margin.

degree of operating leverage

Contribution Margin / Net Operating Income

CVP graph ( Break even chart)

unit volume is the X asis and dollars is the Y axis. 3 lines in graph: Total sales, total expenses and fixed expenses.

Net operating income

units sold X (unit price - cost) - fixed expenses= contributed income

Variable Expense Ratio

variable expenses/sales

Adams, Inc. has sales of $100,000 with a contribution margin of $60,000 and net income of $20,000. Baron, Inc. has sales of $110,000 with a contribution margin of $44,000 and net income of $22,000. Which of the following statements are correct?

Adams has a higher degree of operating leverage than Baron. Baron's net income grows twice as fast as its sales.

When the analysis of a change in profits only considers the costs and revenues that will change as the result of the decision, the decision is being made using

Incremental analysis

Margin of Safety Percentage

Margin of safety in dollars = Total sales − Break-even sales Margin of safety percentage = Margin of safety in dollars ÷ Total sales

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

Net operatin income will increase by .70 & contribution margin will increase by .70

Contribution margin

Sales - Variable Expenses

What is the order of the contribution Income Statement ?

Sales, Variable expenses, Contribution margin, Fixed expenses, Net operating loss/gain

margin of safety

The excess of budgeted or actual dollar sales over the break-even dollar sales.

Operating leverage

a measure of how sensitive net operating income is to a given percentage change in dollar sales

margin safety in dollars =

actual sales - break even sales

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?

answer is fixed expenses / 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

Using the contribution margin ratio, the impact on net income for a change in sales dollars is Blank______.

change in sales dollars × contribution margin ratio

peice rate

commsion payment

After reaching the break even point, a compnays net operating income will increase by the ____ _____ per unit for each additional unit sold.

contribution, margin

A company with a high ratio of fixed costs:

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

Cost-volume-profit analysis helps managers make decisions like what services to offer, prices, marketing. Its primary purpose is to estimate how profits are affected by the following five factors

1. Selling prices 2. Sales Volume 3. Unit variable costs 4. Total fixed costs 5. Mix of products sold

Softie, Inc. produces facial tissues. The company's contribution margin ratio is 77%. Fixed expenses are $240,400. To achieve a target profit of $930,000, Softies' sales must be Blank______.

1520000

Gifts Galore had sales revenue of $189,000. Total contribution margin was $100,170 and total fixed expenses were $27,500. The contribution margin ratio was Blank______.

53%

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 Blank______.

8,400

Profit

=(PxQ) - (VxQ)- fixed expenses =(p-v) X Q - Fixed expenses = Unit CM x Q - Fixed expenses

CM Ratio

EX 60% means for every dollar we incur 60% in variable expense

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

Fixed, Profit

CVP Relationships

Profit = (Sales - Variable Expenses) - Fixed Expenses

Relationship between profit and the contribution margin ratio can be expressed using

Profit impact = (Sales X CM Ratio) - fixed EXP

contribution margin ratio

Unit Contribution Margin / Unit Selling Price

why is Contribution margin (CM) important ?

With business with lots of different products the ratio is the best way to review sales and stuff.

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

degree of operating leverage

Once the break-even point is reached, the sale of an additional unit increases contribution margin by an amount that is ______ the increase in net operating income.

equal to

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

false

total contribution margin

fixed expenses plus net operating income

Cost structure

refers to the relative proportion of fixed and variable costs in an organization

Unit contirubiton margin

selling price per unit - variable expeneses ( p-v)

Unit contribution margin is interpeted as

the amount of profit generated by one addition unit sales

Break even point

the level of sales at which profit is zero