cost acct ch 5

profit

= (P × Q - V × Q) - Fixed expenses

profit

= (Sales - Variable expenses) - Fixed expenses

dollar sales to attain the target profit

= (Target Profit + Fixed Expenses) / CM Ratio

unit sales to attain the target profit

= (Target Profit + Fixed Expenses) / CM per unit

cm ratio

= Contribution Margin / Sales

dollar sales to break even

= Fixed Expenses / CM Ratio

unit sales to break even

= Fixed Expenses / Unit CM

unit cm

= Selling price per unit - Variable expenses per unit

margin of safety in dollars

= Total Sales - Break Even Sales

variable expense ratio

= Variable Expenses / Sales

degree of operating leverage

= contribution margin / net operating income

equals

A company has reached its break-even point when the contribution margin _________________ fixed expenses

b. $100 (($100,000 - $80,000)/200)

A company reports the following for a sales volume of 200 units: $100,000 in sales and $80,000 in variable costs. If the break-even point is 200 units and the company sells 201 units, net profit will be: a. $400 b. $100 c. $200 d. $500

c. $36,000

A company sold 750 units with a contribution margin of $120 per unit. If the company has a break-even point of 450 units, the net operating income or (loss) is: a. $54,000 b. ($64,000) c. $36,000 d. ($10,000)

c. $36,000 ((750 - 450) x $120)

A company sold 750 units with a contribution margin of $120 per unit. If the company has a break-even point of 450 units, the net operating income or (loss) is: a. $54,000 b. ($64,000) c. $36,000 d. ($10,000)

high fixed cost

A disadvantage of a ______________________ structure is that income will be lower in bad years compared to companies with lower proportion of fixed costs.

high fixed cost

An advantage of a _____________________ structure is that income will be higher in good years compared to companies with lower proportion of fixed costs.

lower

Commissions based on sales dollars can lead to _______________ profits in a company.

low

Companies with high/low fixed cost structures enjoy greater stability in income across good and bad years.

fixed, profit

Contribution margin is first used to cover _________ expenses. Once the break-even point has been reached, contribution margin becomes ______________

contribution margin, sales

Contribution margin ratio is equal to ____________________ divided by ______________.

different

Different products have _________________ selling prices, cost structures, and contribution margins.

b. increase $18,000 (2,000 x ($15 - $6))

Fantastic Frames sells its frames for $15 per unit. Variable costs total $6 per unit, and fixed costs total $90,000. If the number of units being sold increases by 2,000 frames, net operating income will: a. increase $30,000 b. increase $18,000 c. decrease $48,000 d. decrease $72,000

a. net loss

If the total contribution margin is less than the total fixed expenses, then a ___________ will occur. a. net loss b. net profit c. break-even point

d. (unit sales - unit sales to break even) x unit contribution margin

Net operating income can be calculated as: a. unit sales x unit contribution margin b. (dollar sales - dollar sales to break even) x unit contribution margin c. dollar sales - dollar sales to break even d. (unit sales - unit sales to break even) x unit contribution margin

b. equal to

Once the break-even point has been reached, the sale of an additional unit will lead to an increase in contribution margin that is ____________ the increase in net operating income. a. greater than b. equal to c. less than

c. (P x Q) - (V x Q) - Fixed expenses

Profit equals: a. (P x Q) - (V x Q) + Fixed expenses b. (P - V - Fixed expenses) x Q c. (P x Q) - (V x Q) - Fixed expenses d. (P x Q) + (V x Q) - Fixed expenses

b. break-even

Solving for the sales level needed to achieve a profit of zero is the same process as solving for the sales level needed to: a. reach a profit level of 100% of sales b. break-even c. have sales equal fixed costs

higher, lower

The __________ the margin of safety, the __________ the risk of not breaking even and incurring a loss.

formula, equation

The _____________ method is a shortcut version of the _____________ method.

margin of safety

The amount by which sales can drop before losses are incurred is the _________________________.

a. total fixed expenses

The break-even point is reached when the contribution margin is equal to: a. total fixed expenses b. profit c. total sales d. total variable expenses

d. total fixed expenses

The break-even point is reached when the contribution margin is equal to: a. total variable expenses b. total sales c. profit d. total fixed expenses

cvp graph

The relationships among revenue, cost, profit, and volume can be expressed graphically by preparing a ______________

c. contribution margin

To calculate profit, multiply the _____________ per unit by sales volume and subtract total fixed cost.

variable expense

Variable expenses/Sales is the calculation for the ________________________ ratio

more complex

When a company sells more than one product, break-even analysis becomes _______________________

d. sales volume

When preparing a CVP graph, the horizontal axis represents: a. variable costs b. total costs c. sales dollars d. sales volume

c. unit contribution margin, unit sales, and total fixed costs

Which of the following is needed to calculate profit? a. contribution margin ratio, unit sales, and total fixed costs b. unit contribution margin and total fixed costs c. unit contribution margin, unit sales, and total fixed costs d. contribution margin ratio and total fixed costs

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

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 = variable cost per unit + fixed cost per unit c. selling price per unit = contribution margin per unit + fixed cost per unit

managers

_______________ often have some latitude in determining their organization's cost structure

sales mix

_______________________ is the relative proportion in which a company's products are sold.

contribution margin

is the amount remaining from sales revenue after variable expenses have been deducted, that "contributes" to covering fixed costs and generating a profit

margin of safety

is the excess of budgeted or actual sales dollars over the break-even volume of sales dollars. It is the amount by which sales can drop before losses are incurred.

cost structure

refers to the relative proportion of fixed and variable costs in an organization.