BADM 2710 ch 7

Given the following information, calculate the break-even point in sales dollars. Total Per unit % Sales $4.00 Variable costs $3.00 Contribution margin $1.00 Fixed costs 72,000

$288,000 Reason: Correct. $72,000/25% = $288,000.

If the operating leverage for Company A is 6 and sales increase by 3%, there is a % change in net income.

18

Given the following information, calculate the contribution margin ratio. Sales$250,000$5.00Variable costs $3.00Contribution margin Fixed costs

40.0%$5−$3=$2 unit contribution margin$2/$5 = .400 = 40.0%

A company has no profit or loss at the _____-_____ point.

Blank 1: break Blank 2: even

The intersection of the total cost line and total revenue line in a CVP graph is the ______-_____ _______ .

Blank 1: break Blank 2: even Blank 3: point

Operating managers usually prefer the income statement because it quickly shows how income will be affected by changes in sales volume

Blank 1: contribution

Sales revenue minus variable expenses is called ______ ______.

Blank 1: contribution Blank 2: margin

The relative proportion of its fixed and variable costs is called the of an organization

Blank 1: cost Blank 2: structure

The extent to which an organization uses fixed costs is its cost structure is called _______ _____.

Blank 1: operating Blank 2: leverage

The area between the total revenue and total cost lines but above their intersection is called the area.

Blank 1: profit

The difference between budgeted sales revenue and break-even sales revenue is called the _____ _____.

Blank 1: safety Blank 2: margin

The difference between total sales revenue and total variable expenses is _______ _____ _____.

Blank 1: total Blank 2: contribution Blank 3: margin

A statement that shows the gross margin for a company is an example of a(n) _________ income statement.

Blank 1: traditional

The contribution format highlights the distinction between _______ and _______ costs.

Blank 1: variable Blank 2: fixed

On a profit-volume graph, the _______ axis intercepts at the amount equal to fixed expenses at the zero activity level.

Blank 1: vertical

The break-even point is the level of sales needed to earn a target profit of ______.

Blank 1: zero or 0

Break-even in units is calculated as ______.

Fixed Expenses/Unit Contribution Margin

True or false: The profit equation approach to break-even calculates the break-even point in units of sales.

True

True or false: A CVP graph can be used to direct management's attention to issues that may need correction.

True Reason: Correct. Graphs can be used to visually show management issues.

Select all that apply CVP analysis is used to determine the effects of ______.

activity changes on revenues selling price changes on profits activity changes on costs cost changes on profits

To calculate the sales dollars or units needed to achieve a target profit, the break-even contribution margin formulas can be modified by ______.

adding target profit to fixed expenses

The intersection of the total cost line and total revenue line in a CVP graph is the ______ point.

break-even

Break-even point in units × selling price per unit is the calculation for ______.

break-even sales

The break-even point in sales dollars may be calculated as ______.

break-even units × sales price per unit

Cost-volume-profit analysis can be extended to determine the effect on profit of other changes, such as ______.

changes in income tax rates

Sales revenue minus variable expenses is called __.

contribution margin

Select all that apply A contribution income statement shows ______.

contribution margin sales a breakdown of expenses by cost behavior net income

If the variable cost per unit decreases, the break-even in units will ______.

decrease Reason: Correct. If the variable cost decreases, contribution margin will increase and the break-even in units will decrease.

Break-even in sales dollars is calculated as ______.

fixed expenses/contribution margin ratio

Select all that apply Cost structure ______.

has a significant effect of the sensitivity of profits to changes in volume is the relative proportion of fixed and variable costs

Advanced manufacturing systems are more fixed cost intensive, resulting in ______.

higher operating leverage, higher break-even point and lower safety margin

Select all that apply Operating managers frequently prefer the contribution income statement because it ______.

highlights CVP relationships separates fixed and variable expenses

If fixed expenses increase with no other change, the break-even point will ______.

increase

Operating leverage for managerial accountants refers to an organization's ability to ______.

increase net income with changes in sales

As the result of changes in sales revenue, a company with a high operating leverage factor will have a ______.

large change in net income Reason: Correct. The higher the operating leverage factor, the greater the changes in profit as a result of the change in sales revenues.

Select all that apply The trade-off of a high operating leverage is the risk of having ______.

large committed fixed costs high break-even points

In an economic recession, a company with high fixed costs will be Blank______ able to adapt to lower consumer demand than a company with low fixed costs.

less Reason: Correct. Variable costs respond to changes in volume immediately, while the elimination of fixed costs takes longer.

The area between the total revenue and total cost lines but below their intersection is called the ______ area.

loss

The effect of an increase in sales revenue for a company with a cost structure largely dependent upon variable expenses will have a ______.

low contribution margin rate and therefore a low percentage increase in net income

Select all that apply In manufacturing and merchandising firms, traditional income statements show ______.

net income sales gross margin a breakdown of expenses by period and product costs

Select all that apply The break-even point can ______.

provide management information related to profitability and capacity

The safety margin is the difference between budgeted ______.

sales revenue and break-even sales revenue

Select all that apply A profit-volume graph ______.

shows profit or loss as the vertical distance between the horizontal axis and the profit line crosses the horizontal axis at the break-even point

Select all that apply The safety margin ______.

tells management how much sales revenue can be lost before the company moves from a net income to a net loss is the difference between budgeted sales revenue and break-even sales revenue provides information about how close operations are to the break-even point

In a traditional CVP graph, the total revenue line intercepts the vertical axis at ______.

the origin

The difference between total sales revenue and total variable expenses is ______.

total contribution margin

Select all that apply The assumption that the behavior of total expenses is a straight-line over the relevant range implies that ______.

total fixed cost remains constant the number of units produced equals the number of units sold the variable cost per unit remains unchanged total revenue is a straight-line

In a traditional CVP graph, the total cost line intercepts the vertical axis at ______.

total fixed expenses

Select all that apply For cost-volume-profit analysis to be valid, within the relevant range, ______.

total fixed expenses will remain constant the price of the product will not change as sales volume changes the sales mix remains constant the number of units produced and sold is equal

Select all that apply A change in selling price can affect ______.

total sales revenue sales volume

Fixed expenses divided by unit contribution margin is the formula for break-even in ______.

units

Select all that apply The unit contribution margin can change due to a change in Blank______ per unit.

variable cost selling price

The break-even point is __.

where revenues equal expenses

To use the profit equation to find the break-even point, profit must be set to equal ______.

zero