Learn Smart - Chapter 6

The break-even point is affected by:

Contribution Margin Unit Sales Mix Total Fixed Costs

At the break-even point:

Net operating is zero. Sales revenue equals total costs.

When preparing a multi-product break-even analysis, the assumption is ordinarily made that the ________ will not change.

Sales Mix

Which of the following statements is correct?

The higher the margin of safety, the lower the risk of incurring loss.

Which of the following is needed to calculate profit

Unit Contribution Margin Unit Sales Total Fixed Costs

A company's break-even point is 17,000 units. If the contribution margin is $22 per unit and 26,000 units are sold, net operating profit will be:

$ 198, 000 (26,000 - 17,000) x 22 = 198,000

Given a sales price of $100, variable costs of $70 and a break-even point of 500 units, net operating profit for sale 501 units will be $________.

$30 100 - 70 = 30

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:

$909,677 564,000 / 0.62

Place the following items in the correct order in which they appear on the contribution margin format income statement.

1. Sales 2. Variable Expenses 3. Contribution Margin 4. Fixed Expenses 5. Net Operating Income

A company's selling price is $90 per unit; its variable cost per unit is $28; and its total fixed expenses are $320,000. What sales volume is needed to achieve the target profit of $200,800?

8400 units ($200,800 + $320,000) / ($90 - $28) = 8400 units

Chitter-chatter sells phones and has set a target profit of 975,000. The contribution margin ratio of 65%, and fixed cost are 195,000. Sales dollars needed to earn the target profit total:

$1,800,000 (975,000 + 195,000) / .65 = 1,800,000

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 sales?

7,625 units 305,000 / 40 = 7625

After reaching the break-even point, a company's net operating income will increase by the __________ __________ per unit for each additional unit sold. (Enter only one word per blank.)

Contribution Margin

To calculate the effect on profits of a planned increase in sales, you need the increase in units sold, any change in the fixed costs and the:

Contribution Margin Per Unit

The break-even point calculation is affected by:

Costs per unit Sales mix Selling price per unit

Knowledge of previous sales is necessary when using incremental analysis to evaluate a change in profits

False

The margin of safety is the excess of break even sales dollars over budgeted (or actual) sales dollars.

False

CVP analysis focuses on how profits are affected by

Five of the following Factors: 1) Selling prices 2) Sales volume 3) Unit variable costs 4) Total fixed costs 5) Mix of products sold.

Contribution margin is first used to cover _________ expenses. Once the break-even point has been reached, contribution margin becomes _________. (one word per blank)

Fixed Profit

Fantastic Frames sells its frames for $15 per unit. the variable cost total is $6 per unit, and fixed costs total $90,000. If the number increases by 2,000 frames, net operating income will:

Increase $18,000 2,000 x (15-6) = 18,000

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

Zero