Accounting Week 5

The contribution margin equals sales minus

all variable costs

If company has sale of $100,000, a contribution margin of $40,000 and a fixed expenses of $50,000.. the company has?

$10,000 net operating loss

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 [contribution margin= 20,000 x ($20 x $11)= $180,000]

Cakes by Jackie has $144,000 a fixed cost per year. The contribution margin ratio is 59%. The sales dollar to break even rounded to the nearest dollar equals____

$244,068 [144,000/.59=$244,068

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 [net operating income= 30,000 x (40-19) - 25,000]

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

Company A has sales of $500,000, variable costs of $350,000, and fixed costs of $150,000. Which of the following are true?

1. Company A has reached the break-even point. 2. Company A's contribution margin equals the fixed costs

Place the following items in the correct order in which they appear on the contribution margin format income statement:

1.Sales 2.Variable Expenses 3.Contribution margin 4.Fixed Expenses 5.Net Operating Income

Jump-It Corporation has a margin of safety of $272,000. The company sold 100,000 units this year. If the company sells each unit for $17, the margin of safety percentage is ______.

16% Margin of safety = $272,000/(100,000 × $17) = 16%

Company A has fixed costs of $564,000 and wishes to earn a profit of $800,000 this year. if company A has a contribution margin ratio of 62%, what amount of sales dollars must be sold to reach the target profit?

2,200,000 ($564,000+$800,000)/.62

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?

2,800 [$98,000/($50-$15)= 2,800)

Company A sells its product for $10 per unit. If Company A has variable expenses of $5 per unit and fixed expenses of $200,000, what is the break-even point in units and dollars?

40,000 units and $400,000 $200,000/5 = 40,000 40,000 x $10 = $400,000

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:

8,400 units ( $320,000 + 200,800)/($90 -$28)

Citrus Fruits sells oranges for $20 per crate. If the company's margin of safety is $180.000 the margin of safety in units

9,000

Contribution margin ______.

Becomes profit after fixed expenses are covered

Solving for the sales level needed to achieve a profit of zero is the same process as solving for the sales level needed to:

Break-even

Multiplying unit selling price times the number of units required to breakeven one way to calculate

Break-even sales dollars

Margin of safety in dollars is:

Budgeted (or actual)sales minus break even sales

Which tool can be used to easily calculate the change in profit restitting from a change in sales price, sales volume variable costsor fixed costs

CVP analysis

CVP is an acronym for:

Cost - volume - profit

Once the break-even point has been reached, the sale of an additional unit will lead to an increase in contribution margin that is ____ the increase in net operating income.

Equal to

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

False

Total contribution margin equals___

Fixed expenses plus net operating income

To convert the margin of safety in dollars to the margin of safety terms of the number of units solddivide the margin of safety in dollars by the:

Sales price per unit

To simplify CVP calculations, it is assumed that___ will remain constant

Selling price

At the break even point____.

Total revenue equals total cost and net operating income is zero

After reaching the break-even point, a company's net operating income will increase by the __________ __________ per unit for each additional unit sold.

contribution margin

To estimate the effect on profits for a planned increase in sales, multiply the increase in units sold by the unit _______ _______

contribution margin

The contribution margin statement is primarily used for

internal decision making

The break-even point is the level of sales at which the profit equals___

zero

True or false: The margin of safety is the excess of break-even sales dollars over budgeted (or actual) sales dollars.

False- budgeted or actual sales dollars/ break even sales dollars

Which of the following are assumptions of cost-volume-profit analysis?

1) Cons are linear and can be accurately divided into variable and fixed elements 2) and multi product companies, the sales makes is constant

CVP analysis focuses on how profits are affected by:

1) selling price 2) sales volume 3) mix of product sold 4) Unit variable cost 5) total fixes costs

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

A company's break-even point is 17,000 units. If the contribution margin is $22 per unit and 26,000 units are sold, net operating profit will be:

$198,000 [net operating income= (26,000 - 17,000) x 22]

Run like the wind sells ceiling fans. Target profit is $470,000. If each fans contribution margin is $32 and fixed costs are $222,640, the number of fans required to meet the companys goal is:

$21,645 fans ($470,000+$222,640)/$32= $21,645

Blissful Blankets' target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets Blissful Blankets need to sell in order to achieve its target profit is:

$40,000 [($520,000 + $320,000) / $21 = 40,000]

In order to reach a target profit of $180,000, 90,000 units need to be sold. Assuming each unit sells for $7.50, the total sales dollars needed to reach the target profit is $ ___________.

$675,000 90,000 x $7.50 = $675,000

A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. What is the BREAK-EVEN point in unit sales?

$7,625 [$305,000/$40= $7,625

Company A has fixed costs of $564,000 and a contribution margin of 62%. Sales dollars to break-even rounded to the nearest whole dollar equals:

$909,677 [$564,000/0.62]

Net Operating Income equals:

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

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

The contribution margin statement is ordinarily used by those

Inside the company only

The margin of safety percentage is:

Margin of safety in dollars/total budgeted (or actual) sales in dollars.

If the total contribution margin is less than the total fixed expenses, a ____ occurs

Net loss

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

Assumptions

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

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

Volume, cost, and selling price