Managerial Account - Chapter 6: Cost-Volume-Profit Analysis

Contribution margin ______. Multiple choice question. a) covers fixed cost and profit b) is first used to cover variable expenses c) equals sales minus fixed expenses

a) covers fixed cost and profit Reason: Contribution margin is first used to cover fixed expenses. It is equal to sales - variable expenses.

Company A has fixed costs of $564,000 and wishes to earn a profit of $800,000 this year. If Company A has a contribution margin ratio of 62%, sales dollars needed to reach the target profit equals ______. Multiple choice question. a) $2,200,000 b) $3,000,000 c) $1,364,000 d) $913,880

$2,200,000 Reason: Sales = ($564,000 + $800,000)/0.62 = $2,200,000 Total Fixed Costs + Target Profit ----------------------------------- = Target Sales ($) Contribution Margin Ratio %

A company sells a product for $80 per unit and has a contribution margin ratio of 45%. Fixed costs total $180,000. Sales dollar to break even equals ______. Multiple choice question. a) $327,273 b) $500,000 c) $180,000 d) $400,000

$400,000 Reason: $180,000/45% = $400,000 Total Fixed Costs -------------------- = Break Even Sales Contribution Margin Ratio %

Select all that apply Contribution margin equals sales minus ______. - variable selling and administrative costs - variable manufacturing costs - fixed selling and administrative costs - fixed manufacturing overhead

- variable selling and administrative costs - variable manufacturing costs

The amount of each unit sold contributes towards fixed costs and profit is the (1)_______ (2)________.

1. contribution 2. margin

A company sells 15,000 units of product per month. The sales price per unit is $5.00, variable costs are $2.80 per unit and and total fixed costs equal $3,000. The contribution margin ratio is ______. Multiple choice question. a) 52% b) 40% c) 56% d) 44%

44% Sales price - variable cost = contribution margin $5.00 - $2.80 = $2.20 2.20 / 5 = .44(100) = 44% Reason: ($5.00 - $2.80) / $5.00 = 44%

Given fixed costs of $30,000, variable costs of $2.00 per unit, and a contribution margin of $5.00 unit,_________________ units have to be sold in order to break even. (Enter your answer as a whole number.)

Blank 1: 6000 or 6,000 Total fixed costs/ unit contribution = break even units 30,000/5.00

Given total fixed costs of $35,000 and a contribution margin ratio of 40%, $___________ of revenue must be earned to break even. (Enter your answer as a whole number.)

Blank 1: 87500 or 87,500 total fixed costs/contribution margin ratio % = break-even sales 35,000/40% = 87500

How much contribution margin is generated per dollar of sales revenue is the (1)______________ (2)____________ (3)________________ . (Enter only one word per blank.)

Blank 1: contribution Blank 2: margin Blank 3: ratio

The formula used to calculate the sales volume needed to achieve a target profit is ______. Multiple choice question. a - (Target profit + Fixed expenses)/Selling price per unit b - (Target profit + Fixed expenses)/Unit contribution margin c - (Variable expenses + Fixed expenses)/Selling price per unit d - (Target profit)/(Fixed expenses - Unit contribution margin)

b - (Target profit + Fixed expenses)/Unit contribution margin

Contribution margin equals sales minus _______. a. period variable costs only b. all variable costs c. all fixed costs d. all product costs e. product variable costs only

b. all variable costs

The contribution margin stated as a percentage of sales dollars is the ______. a) weighted-average contribution margin b) contribution margin per unit c) contribution margin ratio

c) contribution margin ratio

Methods that can be used to model the relationship between revenues, costs, profit, and volume include (1)_____ contribution margin method and the contribution (2)_____ (3)____ method.

1. unit 2. margin 3. ratio

The amount that each unit sold contributes to fixed costs and profit is ______. a) variable cost per unit b) unit sales price c) unit contribution margin

c) unit contribution margin

Run Like the Wind sells ceiling fans. Target profit for the year is $470,000. If each fan's contribution margin is $32 and fixed costs total $222,640, the number of fans that must be sold to meet the company's goal is ______. a) 6,958 b) 14,688 c) 7,730 d) 21,645

d) 21,645 Reason: Sales volume = ($470,000 + $222,640)/$32 = 21,645 fans. Formula: Total fixed costs + target profit ----------------------------------- = target units unit contribution margin

Larson's Ltd. sells its product for $12.00 per unit. The contribution margin per unit is $8.00 and fixed costs are $75,000. Larson had to sell to ________ units to break even a) 18,50 b) 6,250 c) 3,750 d) 9,375

d) 9,375 Total Fixed Costs/Unit Contribution Margin = Break Even Units Reason: $75,000/$8.00 = 9,375 units

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

d) Break-even analysis Reason: This is a form of CVP, not a method.

Chitter-Chatter sells phones and has set a target profit of $975,000. The contribution margin ratio is 65%, and fixed costs are $195,000. Sales dollars needed to earn the target profit total ______. $1,800,000 $1,200,000 $760,500 $1,170,000

$1,800,000 Reason: Sales = ($975,000 + $195,000)/0.65 = $1,800,000. Total Fixed Costs + Target Profit ------------------------------------ = Target Sales $ Contribution Margin Ratio

Given sales of 10,000 units per month, sales price per unit of $4.00, variable costs of $1.80 per unit and and total fixed costs of $5,000, the contribution margin ratio is ________________%. (Enter your answer as a whole number.)

55% Sales price - variable cost = contribution margin $4.00 - $1.80 = $2.20 2.20 / 4 = .55(100) = 55%