Acct II Chapter 6

Target sales equal

(Total fixed costs + target profit) / Contribution margin ratios (%)

Sales volume equals

(target profit + total fixed cost) divided by contribution margin.

Which of the following must be subtracted from sales to reach the contribution margin?

-Variable manufacturing costs. -Variable selling and administrative costs.

If the sales increases by 5% and the degree of operating leverage is 4, net operating income should increase by

5% x 4 = 20%

To calculate the degree of operating leverage

= contribution margin /net operating income

Solving for the sales level needed to achieve a profit of zero is: a) break-even analysis b) cost volume profit analysis c) target profit analysis.

Break even analysis.

several different approaches or methods we can use to model the relationship between revenues, costs, profit, and volume, including the following

Profit Equation Method. Unit Contribution Margin Method. Contribution Margin Ratio Method.

Full absorption costing

a costing method that assigns all manufacturing costs to the product as it is being produced.

full absorption costing is required for

external reporting

the break-even point is reached when total revenue is ______ total cost

the break-even point is reached when total revenue is equal total cost

Within the relevant range, which costs remain constant on a per UNIT BASIC

variable cost.

Which tool can be used to easily calculate the change in the profit resulting from a change in sales price, sales volume, variable costs or fixed cost?

CVP analysis (Cost-Volume-Profit)

Degree Operating Average equals

Contribution Margin / Net Operating Income

Cost behavior

Instead of classifying costs as either manufacturing (product) or non-manufacturing (period) costs, we now classify costs based on how they behave in response to a change in some measure of activity.

In the profit equation, total ______ is a function of the number of units sold (Q).

In the profit equation, total variable cost and sales revenue is a function of the number of units sold (Q).

which analysis in the extension of break-even analysis that allows managers to determine units or sales needed to achieve an earning's goal?

Target Profit Analysis

break-even sales equals

Total fixed cost divided by contribution margin ratio (%)

Break even equals

Total fixed costs divided by the unit contribution margin.

When constructing a CVP graph, the ____ of the line represents variable cost per unit

When constructing a CVP graph, the SLOPE of the line represents variable cost per unit

The single point where the total revenue line crosses the total expense line on the CVP graph indicates:

a. profit equals zero b. the break-even point

Which of the following is NOT a method used for basic CVP analysis? a) Profit equation b) unit contribution margin c) Break even analysis d) contribution margin ratio

c) break even analysis. Because this is a form of CVP, NOT a method.

CVP:

can be used for "what-of" analysis. - can be used to make many different decisions. - allows managers to see how changing one variable can impact another.

The contribution margin stated as a percentage of sales dollars is the:

contribution margin ratio

The difference between break-even analysis and target profit analysis is: a) the formula that is used. b) total amount of fixed cost c) the per unit price d) the amount that profit is set to.

d) the amount that profit is set to.