ACCT 252 CVP

On the CVP graph, the break-even point is the point where total sales intersects ______ cost.

total

When a company has multiple products the break-even point is calculated using the ______ contribution margin.

weighted average

Target costing is a strategy where the sales price is determined by ______.

what the market is willing to pay

Increasing fixed costs will ______ the number of units necessary to earn a desired profit.

increase

Reducing fixed cost ______ the break-even point.

reduces

Calculate contribution margin per unit assuming sales price is $21, variable cost is $11, and fixed cost is $6 per unit.

$10 Reason: $21 - $11 = $10

Given a contribution margin ratio of 0.10 and fixed costs of $1,000, the break-even point in dollars is ______.

$10,000 Reason: $1,000 ÷ .10 = $10,000

Given a contribution margin ratio of 0.20 and fixed costs of $2,000, the break-even point in dollars is ______.

$10,000 Reason: $2,000 ÷ .20 = $10,000

If the contribution margin per unit is $100 and fixed costs total $1,000, how many units must be sold to earn a profit of $10,000?

$110 Reason: Sales volume in units= Fixed costs+Desired profit/Contribution margin per unit ($1,000+$10,000)/$100= 110 units

Sam's Dog Company sells two toys: Red and Blue. Red sells for $8 and has a variable cost of $3. Blue sells for $10 and has a variable cost of $4. The expected sales mix is 60% Red and 40% Blue. What is the weighted average contribution margin?

$5.40 Reason: Red ($5 CM × 60%) + Blue ($6 CM × 40%) = $5.40

Sam's Dog Company sells two toys: Red and Blue. Red sells for $7 and has a variable cost of $5. Blue sells for $9 and has a variable cost of $6. The expected sales mix is 80% Red and 20% Blue. What is the weighted average contribution margin?

$2.20 Reason: Red ($2 CM × 80%) + Blue ($3 CM × 20%) = $2.20

A company's contribution margin is $14 per unit. If fixed costs are $6 per unit and variable costs are $9 per unit, the selling price of the product must be ______.

$23 Reason: Contribution margin of $14 + variable costs of $9 = $23 selling price.

Given a contribution margin ratio of 0.25 and fixed costs of $1,000, the break-even point in dollars is ______.

$4,000 Reason: $1,000 ÷ .25 = $4,000

If the contribution margin is $90,000 and sales are $100,000 what is the contribution margin ratio?

0.90 Reason: Contribution Margin Ratio = Contribution Margin/Sales $90,000/100,000 =.90

The sales price of a product is $2 per unit; the variable cost is $1 per unit; and fixed costs total $1,000. How many units must be sold to break even?

1,000 Reason: Sales-Variable costs-Fixed costs=Profit $2N-$1N-$1,000=$0 $1N=$1,000 N=$1,000/$1 N=1,000 units

If the contribution margin per unit is $1 and fixed costs total $1,000, how many units must be sold to break even?

1,000 Reason: Break-even point in units= Fixed costs/Contribution margin per unit $1,000/$1=1,000 units

If the sales price of a product is $10 per unit; the variable cost is $5 per unit; and fixed costs total $1,000, how many units must be sold to earn a profit of $5?

201 Reason: Sales-Variables costs-Fixed costs=Profit $10N-$5N-$1,000=$5 $5N=$1,000+$5 N=$1,005/$5 N=201 units

Assume the sales price is $15 per unit, variable cost is $6 per unit, and fixed cost is $5,000. If the variable cost decreases to $3 per unit, how many fewer units will have to be sold to earn a target profit of $4,000?

250 Reason: $9,000 ÷ $9 = 1,000 units; $9,000 ÷ $12 = 750 units for a decrease of 250 units.

Mark's Chemical Co. produces two products, Product A and Product B. Fixed costs are $20,000. The weighted average contribution margin is $16 per unit. Product A accounts for 60% of sales and the other 40% are Product B. What is the break-even point in units for Product B?

500 Reason: ($20,000 ÷ $16) × .4 = 500

If a company has budgeted sales of $10,000 and break-even sales of $4,000, what is the margin of safety?

60% Reason: ($10,000 - $4,000) ÷ $10,000 = 60%

The point at which profit equals zero is called the ______ point.

break-even

The point at which contribution margin equals total fixed cost is called the

break-even point

Determining the sales price by marking up the cost is ______.

cost-plus pricing

Jen's Shampoo Company currently earns $50,000 net income. The marketing manager believes reducing the sales price per bottle from $26 to $22 will increase sales volume from 4,375 to 5,000 units. Variable costs are $10 per unit and total fixed costs are $20,000. If the sales price is reduced and the volume increases as expected, net income will ______.

decrease by $10,000 Reason: ($22 × 5,000 units) - ($10 × 5,000 units) - $20,000 = $40,000. This is $10,000 less than Jen's current net income.

A company that has a margin of safety of 40% can incur a 40% ______.

decrease in budgeted sales and still break-even

Charging a premium price for a new product or renowned brand name is ______ pricing.

prestige

If you are unable to sell enough units to earn your desired profit, which of the following would help?

reduce fixed costs

The relative proportions in which a company's products are sold is called the ______.

sales mix

Investigating a multitude of what-if possibilities involving simultaneous changes in fixed cost, variable cost, and volume is called ____ analysis. (Enter only one word per blank.)

sensitivity

Investigating a multitude of what-if possibilities involving simultaneous changes in fixed cost, variable cost, and volume is called ______ analysis.

sensitivity

Determining the market price at which a product will sell is the first step in ______.

target costing

Customers are sometimes willing to pay a premium price for

the right to use a new product first. a prestigious brand name.

Calculate contribution margin per unit assuming sales price is $15 per unit and variable cost is $15 per unit.

0

If sales are $100,000, variable costs are $60,000 and fixed costs are $10,000, what is the contribution margin ratio?

0.40 Reason: ($100,000 - $60,000) ÷ $100,000 = .40

How many units must be sold to break-even if the sales price is $50 per unit, variable costs are $45 per unit and total fixed costs are $5,000?

1,000 Reason: Fixed costs ÷ Contribution margin per unit or $5,000 ÷ $5 = 1,000 units

Assume the sales price is $10 per unit, variable cost is $5 per unit, and fixed cost is $1,000. If the variable cost increases to $8 per unit, how many additional units will need to be sold to earn a target profit of $3,000?

1,200 Reason: $4,000 ÷ $5 = 800 units; $4,000 ÷ $2 = 2,000 units for an increase of 1,200 units.

If the contribution margin per unit is $200 and fixed costs total $1,000, how many units must be sold to earn a profit of $1,000?

10 Reason: Sales volume in units= Fixed costs+Desired profit/Contribution margin per unit ($1,000+$1,000)/$200= 10 units

The sales price of a product is $100 per unit; the variable cost is $20 per unit; and fixed costs total $800. How many units must be sold to break even?

10 Reason: ($100N - $20N) - $800 = $0 N = $800 ÷ $80 = 10 units

If the sales price of a product is $10 per unit; the variable cost is $9 per unit; and fixed costs total $10,000, how many units must be sold to earn a profit of $10,000?

20,000 Reason: Sales-Variables costs-Fixed costs=Profit $10N-$9N-$10,000=$10,000 $1N=$10,000+$10,000 N=$20,000/$1 N=20,000 units

The sales price of a product is $10 per unit; the variable cost is $5 per unit; and fixed costs total $1,000. How many units must be sold to break even?

200 reason: Sales-variable costs- fixed costs=profit 10-5-1,000=0 5=1,000 1,000/5=200

Sam's Dog Company sells two toys: Red and Blue. Contribution margins are $5 for Red and $10 for Blue. The expected sales mix is 60% Red and 40% Blue. Total fixed costs are $3,000 and the company's desired profit is $500. How many total units must be sold to reach this goal?

500 Reason: ($3,000 + $500) ÷ ($5 × .6 + $10 × .4) = 500 total units

If a company has budgeted sales of $20,000 and break-even sales of $5,000, what is the margin of safety?

75% Reason: ($20,000 - $5,000) ÷ $20,000 = 75%

Mark's Chemical Co. produces two products, Product A and Product B. Fixed costs are $20,000. The weighted average contribution margin is $16 per unit. Product A accounts for 60% of sales and the other 40% are Product B. What is the break-even point in units for Product A?

750 Reason: ($20,000 ÷ $16) × .6 = 750

Sam's Dog Company sells two toys: Red and Blue. Contribution margins are $2 for Red and $3 for Blue. The expected sales mix is 60% Red and 40% Blue. Total fixed costs are $2,112 and the company's desired profit is $264. How many total units must be sold to reach this goal?

990

The amount by which a company's sales can fall short and still break even is called the ____ of_____ . (Enter only one word per blank.)

Blank 1: margin Blank 2: safety

The relative proportions in which a company's products are sold is called the ____ ____ . (Enter only one word per blank.)

Blank 1: sales Blank 2: mix

When a company has multiple products the break-even point is calculated using the ____ ____ contribution margin. (Enter only one word per blank.)

Blank 1: weighted Blank 2: average

How does increasing fixed cost affect the break-even point?

Increases the number of units to break-even

Select all that apply Identify the underlying assumptions of CVP analysis.

The sales mix in multiproduct companies is constant Inventory levels in manufacturing companies are constant All CVP variables are within the relevant range Need help? Review these concept resources.Read About the Concept Feedback Next QuestionReading The selling price is constant Efficiency and productivity are constant Cost are linear

Select all that apply Which of the following are components of the CVP graph? (Select all that apply)

Total Cost Line Area of Profit Total Sales Line Area of Loss Fixed Cost Line

Sam's Dog Company sells two toys: Red and Blue. Contribution margins are $9 for Red and $5 for Blue. The current sales mix is 80% Red and 20% Blue. If the sales mix changes to 60% Red and 40% Blue, Sam's profit will ______.

decrease

Jen's Shampoo Company currently earns $40,000 net income. The marketing manager believes reducing the sales price from $28 to $25 will increase sales volume from 4,375 to 5,000 units. Variable costs are $12 per unit and total fixed costs are $30,000. If the sales price is reduced and the volume increases as expected, net income will ______.

decrease by $5,000 Reason: ($25 × 5,000 units) - ($12 × 5,000 units) - $30,000 = $35,000. This is $5,000 less than Jen's current net income

A company that has a margin of safety of 60% can incur a 60% ______.

decrease in budgeted sales and still break-even

Sam's Dog Company sells two toys: Red and Blue. Contribution margins are $2 for Red and $3 for Blue. The current sales mix is 60% Red and 40% Blue. If the sales mix changes to 40% Red and 60% Blue, Sam's profit will ______.

increase

Jen's Shampoo currently has fixed cost of $30,000. Management believes sales will increase from 4,375 to 6,000 units if an additional $12,000 is spent on advertising. The sales price is $28 and variable cost is $12 per unit. If fixed costs are increased and management is correct, net income will ______.

increase by $14,000 Reason: Current new income: (($28 - $12) × 4,375) - $30,000 = $40,000. Revised: (($28 - $12) × 6,000) - $42,000 = $54,000. Increasing fixed costs by $12,000 will increase net income by $14,000

Jen's Shampoo currently has fixed cost of $30,000. Management believes sales will increase from 4,375 to 7,000 units if an additional $25,000 is spent on advertising. The sales price is $28 and variable cost is $12 per unit. If fixed costs are increased and management is correct, net income will ______.

increase by $17,000 Reason: Current new income: (($28 - $12) × 4,375) - $30,000 = $40,000. Revised: (($28 - $12) × 7,000) - $55,000 = $57,000. Increasing fixed costs by $25,000 will increase net income by $17,000

Jen's Shampoo's net income was $40,000. A decision was made to decrease the sales price from $28 to $23 per bottle, decrease variable costs from $12 to $8, and decrease total fixed costs from $30,000 to $18,000. The changes resulted in the number of bottles sold decreasing from 4,375 to 4,300. As a result of these changes, net income ______.

increased by $6,500 Reason: Revised: (($23 - $8) × 4,300) - $18,000 = $46,500. These changed increased net income by $6,500.

Jen's Shampoo's net income was $40,000. A decision was made to decrease the sales price from $28 to $25 per bottle, decrease variable costs from $12 to $8, and decrease total fixed costs from $30,000 to $22,000. The changes resulted in the number of bottles sold decreasing from 4,375 to 4,200. As a result of these changes, net income ______.

increased by $9,400 Reason: Revised: (($25 - $8) × 4,200) - $22,000 = $49,400. These changed increased net income by $9,400.

The amount at which a company's sales can fall short before incurring loses is the ______.

margin of safety

Cost-plus pricing is a strategy where the sales price is determined by

marking up the variable cost.