Acctg 325 ch.9

Given the sales price of $375 per unit, variable cost of $125 per unit, and fixed costs of $100,000, the breakeven point in units is 400

$100,000/ (375-125)= 400 units

product A has a contribution margin per unit $12 and product B has a contribution margin per unit $6. Given a sales mix of 25:75, the weighted average contribution margin per unit is:

$12 x 25% + $6 x 75% = $7.50

Given a sales price of $300 per unit, variable cost of $180 per unit, and fixed costs of 150,000, the breakeven point in units is

$150,000/(300-180)= 1,250 units

Given a sales price of $250 per unit, variable cost of $100 per unit, and fixed costs of $60,000, the breakeven in dollars is

$60,000/( 250-100) = 400 units x 250= $100,000

A not for profit organization that provides health services to underprivileged children received $900,000 in funding last year which enabled them to serve a total of 12,000 children. Given a unit variable cost of $35 per child, the organization incurred $ ______ in fixed costs

$900,000 - (12,000 x 35) =480,000

When a company has step (or semifixed) costs

- an approximation of the relevant range may be impossible -breakeven points must be computed for each range

CVP analysis cannot be performed for the company

- breakeven points must be computed for each range - an approximation of the relevant range may be impossible

CVP analysis

- identifies risks in increasing fixed costs if volume fails - can help a firm execute its strategy

given a sales price of $250 per unit, variable cost of $110 per unit, and a break even point of 800 units, the estimated profit if 810 units are sold is

250-110= 140 contribution margin x 10 units sold above break even = 1,400

If fixed costs, F, are $500 per week, selling price per unit = $7.50, and variable cost per unit= $3.50, the break even point, in units, is:

500/4 = 125

At a given volume level, Q, total sales revenue= $100, total variable costs = $40, and total fixed cost = $20. At this volume level, the degree of operating leverage (DOL) is

60/40 = 1.50

Assume a selling price per unit of $10, and a variable cost per unit of $6. If sales increases by $4000, what is the increase in operating profit

The contribution margin ratio is 40%(10-6)/ 10. if sales increase by 4000 profit increase by $1600 (4,000 x 40%)

in a conventional CVP model of profit behavior, total revenues are depicted as

a linear function of sales volume, Q

Operating Leverage is

a measure of risk

Semi Fixed costs

are also called step costs

the term that refers to the proportion of each sales dollar available for the recovery of fixed cost is

contribution margin ratio

The degree of operating leverage (DOL) is

defined at each output, (volume) level Q

the break even point in terms of number of units (i.e. sales volume) equals fixed costs

divided by the contribution margin per unit

T/F: When doing a CVP analysis there is no need to distinguish between variable and fixed cost

false

if the degree of operating leverage (DOL) at a given output level (Q) is 10, this means that

from the output level (Q), each % change in sales leads to a 10% change in operating income

the _____ the operating leverage, the greater the sensitivity of operating income to changes in sales volumes

higher

given the choice of two options, one with high fixed cost and low unit variable cost ( high-fixed-cost option) and the other with low fixed cost and high unit variable cost (low-fixed cost option), the sales level where managers would be equally satisfied with either option is called the

indifference point

the planned of actual sales above the break even point, measured in dollar or units is referred to as

margin of safety

In CVP analysis, the term operating profit refers to

profit exclusive of unusual or non recurring items before tax

a graph that depicts (operating) profit as a function of changes in volume (units sold) is referred to as a

profit- volume graph

By definition, a firm with high operating leverage has

relatively high fixed costs

A key assumption of conventional CVP (cost volume profit) analysis is that

revenue and cost functions are linear

if a multiproduct company cannot reasonably allocate fixed costs to each product, then a constant _________ ________ must be assumed in order to build a single CVP model for profit- planning purposes

sales mix

the level of short term profitability of an organization is a function of: sales volume, selling price per unit variable cost per unit, total fixed costs, and

sales mix

the weighted average contribution margin for a multi product organization is calculated by weighting the contribution margin of each individual product by that products

sales mix % based on sales dollars for the product

Total Contribution Margin for a given accounting period equals

sales volume (in units) x contribution margin per unit

the name for a variety of methods that examine how an amount changes in response to changes in one or more factors used to predict that amount is

sensitivity analysis

If the fixed cost per month is $500, the selling price per unit is $10, and the variables cost per unit is $8, then

the break even point in dollars is $500/ (2/10)

the break even point in dollars equals

the break even point in units x the selling price per unit

operating leverage refers to

the extent to which fixed costs exist in the cost structure of an organization

the concept that is relied upon to justify linear cost and revenue functions in a conventional CVP model is

the relevant range

At the break even point

total contrition market (CM) equals total fixed costs, F