Managerial Accounting Chapter 5

What is the formula for determining the number of units in sales to achieve a desired, or target profit?

(Fixed costs + desired profit)/ contribution margin per unit

Determine the contribution margin per unit based on the following information, and use it to calculate the break-even point in units: Sales revenue per unit $36 Variable Cost per unit $24 Contribution margin per unit (A): Fixed advertising costs: $60,000 Break-even in units (B):

A: 12 B: 5,000

Complete the following to reveal the effect of fixed and variable cost behaviors on profitability based on volume: Number of Units Sold Number of Units Sold 5,400 5,600 Sales Revenue($36 per unit) (A) (B) Total Variable Expenses ($24 per unit): 129,600 134,400 Total Contribution Margin ($12 per unit) (C) (D) Fixed expenses: 60,000 60,000 Net income: (E) (F)

A: 194,400 B: 201,600 C: 64,800 D: 67,200 E: 4,800 F: 7,200

Calculate the contribution margin per unit given the provided data, then use this to calculate # of units in sales required to achieve a profit of $7,500: Sales revenue per unit $50 Variable cost per unit $25 Contribution margin per unit (A): Fixed costs $10,000 Target Profit (B): Break even # of units (C):

A: 25 B: 7,500 C: 700

Calculate the contribution margin ratio, and apply this to determine sales dollars required to achieve a target profit of $12,500: Sales revenue per unit $50 Variable cost per unit $25 Contribution margin per unit (A): Contribution margin ratio % (B): Total fixed costs $10,000 Break even in sales dollars (C):

A: 25 B: 7,500 C: 700

Use the following data to determine the contribution margin ratio. Then apply this ratio to determine break even point in sales dollars: (Please type your answer in all lower case letters without capitalization or punctuation. You can enter % if needed.) Sales revenue per unit $20 Variable cost per unit $12 Contribution margin per unit (A): Contribution ratio % (B): Fixed costs: $24,000 Break-even point in sales dollars (C):

A: 8 B: 40% C: $60,000

Understanding the relationship between fixed and variable costs as they relate to profitability can assist decision makers in which of the following? - Which products generate the most profit - How much must be sold/produced to break even (cover costs) - How much must be sold/produced to achieve specific profit goals - All of the above

All of the above

Which of the following assumptions are made in preparing and in and interpretation of CVP analysis? - Costs can be classified as fixed or variable - Sales price, fixed and variable costs will remain constant within a relevant range - Product mix is determined in advance when calculating/planning for multi product analysis/results - All of the above

All of the above

To determine the break even point in sales dollars, we must first calculate for:

Contribution margin ratio

Classify the following costs as either: a. fixed b. variable Type in either a or b for your answer. Do not type out fixed or variable. Depreciation Administrative salaries Direct materials Property taxes Sales commissions Direct labor

Depreciation - A Administrative salaries - A Direct materials -B Property taxes -A Sales commissions -B Direct labor -B

The break even point is the level at which a company covers costs, but realizes no profit or loss and can be determined by:

Dividing fixed costs by contribution margin per unit

Which of the following is the best example of a mixed cost? - Depreciation - Administrative salaries - Electric bill - Direct materials

Electric bill

The formula for determining break even point in sales dollars is: variable costs divided by contribution margin

False

___________________________are costs that react to, or vary, with changes in production volume or sales.

Variable Costs

_____________________________represents the amount of revenue in excess of variable costs; representing the portion of revenues contributing to covering fixed costs.

contribution margin

__________________________ costs remain constant (within relevant range). They do not react or vary with production/sales levels.

fixed

___________________________can have both fixed and variable characteristics; containing a fixed portion, and a variable portion that increases/decreases with production/sales volume.

mixed costs

The____________________is the range of production or sales volume over which cost behaviors and assumptions are valid/applicable.

relevant range