acct 3001 chapter 5

to calculate the degree of operating leverage, divide ______ by net operating income

contribution margin

to solve for net operating income at any sales volume above the break-even point requires knowledge of the: a) total variable expense b) contribution margin per unit c) projected unit sales d) total contribution margin e) number of units produced f) break-even unit sales

contribution margin per unit, projected unit sales, break-even unit sales

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

fixed, profit

the amount by which sales can drop before losses are incurred is the ____ of ____

margin of safety

variable expenses/sales is the calculation for the ______ ratio

variable expense

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

zero

profit =? a) (PxQ)+(VxQ)-Fixed Expenses b) (PxQ)-(VxQ)+Fixed Expenses c) (P-V-fixed expenses)xQ d) (PxQ)-(VxQ)-fixed expenses

(PxQ)-(VxQ)-fixed expenses

Company A has a contribution margin ratio of 35%. for each dollar in sales, contribution margin will increase by a) .35 b) .65

.35

Lance Inc. has sales of 9,000 units. The contribution margin per unit is 32$ and fixed costs total 120,000. Lance's profit is _____.

168,000 (9,000x32)

given sales of 1,452,000, variable expenses of 958,320 and fixed expenses of 354,000. the contribution margin ratio is: a) 24% b) 90% c) 34% d) 66%

34% ((1,452,000-958,320)/1,452,000=34%)

Paula's Perfumes has a target profit of 4,000 per month. Perfume sells for 15.00 a bottle and variable costs are 13.50 per bottle. Fixed costs are 3,200 per month. The number of bottles that must be sold each month to earn the target profit is: a) 7,200 b) 534 c) 4,800 d) 267

4,800 ((4,000+3,200)/(15.00-13.50)=4,800 bottles)

sales total 500,000 and fixed costs total 300,00. the contribution margin ratio is 68%. profit = ?

40,000 ((500,000x.68)-300,000)

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, ((10-6)x10,000 = 5000)

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? a) 7625 b) 12,725 c) 5100

7625 (305,000/40=7625)

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 a) 920,211 b) 564,000 c) 909,677 d) 1,484,211

909,677 (564,000/.92)

the contribution margin equals sales minus: a) period variable costs only b) all variable costs c) all fixed costs d) product variable costs only e) all product costs

all variable costs

the measure of how a percentage change in sales affects profits at any given level of sales is the: a) contribution margin ratio b) degree of operating leverage c) margin of safety

degree of operating leverage

when constructing a CVP graph, the vertical axis represents a) unit volume b) variable costs c) dollars d) fixed costs

dollars (includes sales, variable costs and fixed costs)

which of the following are assumptions of cost-volume-profit analysis? a) fixed costs per unit stay the same within the relevant range b) in multi product companies, the sales mix is constant c) variable costs per unit increase over the relevant range of activity d) costs are linear and can be accurately divided into variable and fixed elements

in multi product companies, the sales mix is constant, costs are linear and can be accurately divided into variable and fixed elements. (fixed costs in total, not per unit, stay within the relevant range)

Place the following items in the correct order in which they appear on the contribution margin format income statement a) fixed expenses b) contribution margin c) sales d) variable expenses e) net operating income

sales, variable expenses, contribution margin, fixed expenses, net operating income

which of the following represents 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? a) selling price per unit=variable cost per unit + desired profit per unit b) selling price per unit = contribution margin per unit + fixed cost per unit c) selling price per unit=variable cost per unit+fixed cost per unit

selling price per unit=variable cost per unit+desired profit per unit

Terry's Trees has reached its break-even point and has calculated its contribution margin ratio to be 70%. For each 1$ increase in sales: a) total contribution margin will increase by .70 b) net operating income will increase by .70 c) net operating income will increase by .30 d) total contribution margin will increase by .30

total contribution margin will increase by .70, net operating income will increase by .70

to prepare a CVP graph, lines must be drawn representing total revenue, a) total expense, and profit b) total expense, and total fixed expense c) total variable expenses, and total fixed expenses d) break-even point, and profit

total expense, and total fixed expense

CVP analysis focuses on how profits are affected by: a) unit variable cost b) sales volume c) break-even point d) total fixed costs e) selling price f) mix of products sold

unit variable cost, sales volume, total fixed costs, selling price, mix of products sold

a company has reached its break-even point when the contribution margin ____ fixed expenses

equals

daisy's dolls sold 30,000 dolls this year for 40$ each. each dolls variable cost was 19$. if daisy incurred 250,000 of fixed expenses, net operating income for the year is a) (249,979) b) 1,520,000 c) 630,000 d) 380,000

380,000 (30,000x(40-19)-250,000=380,000)

Which of the following statements are true? a) scattergraphs should be used after high-low or regression analysis is performed b) scattergraphs are a way to diagnose cost behavior c) plotting data on a scattergraph is an important diagnostic step d) when plotting a scattergraph, cost is the independent variable

b, c

When a company sells one unit above the number required to break-even, the company's net operating income will: a) increase by the sales price of the extra unit until sold b) decrease by the contribution margin per unit c) change from zero to a net operating profit d) increase or decrease depending on total fixed costs

change from zero to a net operating profit

Elle's Elephant Shop sells giant stuffed elephants for 55$ each. Each elephant has variable costs of 10$ and total fixed costs are 700$. If Ellie sells 35 elephants this month: a) profit = 875 b) total sales = 1,925 c) total costs= 1,250 d) total variable costs = 350

profit=875 (35x(55-10)-700=875) total sales=1925 (35x55=1925) total variable costs=350 ((35x10)=350)

contribution margin divided by sales is the formula for ________

contribution margin ratio