Managerial accounting chapter 5

The impact on net operating income of any given dollar change in total sales can be _____.

changes in sales dollars x contribution margin ratio

To calculate the degree of operating leverage, divide ______ _____ by operating income.

contribution margin

to estimate the effect on profits for a planned increase in sales, multiply the increase un units sold by the unit

contribution margin

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

contribution margin per unit

When contructing a CVP graph, the verticle axis represents:

dollars (includes sales, variable costs and fixed costs)

when a company sells multiple products an increase in total sales always results in an increase in total profits

false

CVP is the acronym for __-__-__

Cost Volume Profit

The amount by which sales can drop before losses are incurred is the ______ of _______

margin. safety

if the total contribution margin is less than the total fixed expenses then a )) will occur

net loss

Daisy's Dolls sold 30,000 dolls this year for $40 each. Each doll's variable cost was $19. If Daisy incurred $250,000 of fixed expenses, net operating income for the year is:

net operating income = 30,000 x (40-19)-250000=380000

the vertical distance between the total revnue line and the total expense line on CVP graph represents the total

profits or loss

The equation used to calculate the variable expense ratio using total revenue is total variable expenses divided by total

sales

Sniffles, inc produces facial tissues. The company's contribution margin ratio is 77%. Fixed expenses are 240400. To achieve a target of 930000. Sniffles sales rounded to the nearest dollar must be

sales = (240400/930000)/.77=1520000

The relative proportion in which a company's products are sold is referred to as

sales mix

when preparing a multi-product break even analyses, the assumption is ordinarily made that the _______ will not change

sales mix

The break-even point calculation is affected by

sales mix selling price per unit cost per unit

to convert the margin of safety in dollars to the margin of safety in terms of the number of units sold, divide the margin of safety in dollars by the

sales price per unit

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

Company A sold 200,000 units. Selling price is $7 per unit, contribution is $4 per unit, and the fixed expenses total 632000 company's A profit Loss is

200,000x4-632000=168000

the cutting edge sells ice states. Total sales are 845000, total variable expenses are 245050 and total fixed expenses are 302000. The variable expense ratio is

245050/845000 = 29$

Plush & Cushy sells high-end desk chairs. The variable expenses per chair is $85.05 and the chairs sell for $189.00 each. The variable expense ratio for Plush & Cushy's chairs is ____________%.

45%

Paula's perfumes has a target profit of 4,000 per month. Perfume sells for $15 per bottle and variable costs are $13.50 per bottle. Fixed costs are 3,200 per month. The Number of bottles that must be sold each month to earn the target profit is

4800 sales volume= (4000 + 3200) / 15.00- 13.25)= 4,800 bottle

if sales increase by 5% and the degree of operting leverage is 4, net operating income should increase by

5% x 4 = 20%

Gifts Galore has $189,000 of sales revenue. Total contribution margin was $100,170 and total fixed expenses were $27,500. The CM ratio was

53% ($100,170/$189,000)

if a company has a variable expense ratio of 35%, its cm ratio must be

65

A company needs to sell 90,000 units to reach the target profit of 180000, if each unit sells for 7.50, the total sales dollars needed to reach the target profit is

675,000 90k x 7.50

Shonda's shoes sell for 95 per pair. If Shonda must sell a total of 284 pairs of shoes to break even and a a total of 450 pairs to achieve her target profit, sales dollars needed to earn the target profit equals

95 x 450 = 42750

Shondra's shoes sell for $95 per pair. If Shonda must sell 284 pairs of shoes to break even, sales dollars needed to break even equals $

95x284=26980

CVP anaylses is based on some _________ that may be violated in practice, but the tool is still generally useful

Assumptions

Contribution margin ratio is equal to ________ __________ divided by ______________

Contribution margin ratio is equal to Contribution Margin divided by Sales

A change in sales mix

from low margin to high margin items may cause total profits to increase despite a decrease in total sales from high margin to low margin items may cause total profits to decrease despite an increase in total sales

if operating leverage is high, a small percentage increase in sales can produce a ____ percentage increase in net operating income then if operating leverage is low

higher

the contribution margin statement is primarily used for

internal decision making

Degree of Operating Leverage

is not constant is greatest at sales levels near the break even point decreases as sales and profits rise

JVL Enterprises has set a target profit of $126000. The company sells a single product for $50 per unit. Variable costs are $15 per unit and fixed costs total $98000. How many units does JVL have to sell to break even?

$98,000/($50-$15)=2,800

Budgeted sales are 982000, break even sales are 932200 and fixed expenses are 429000. Te comapny;s budgeted margin of safety in dollars is

$982,000 - $932,000 = $49,800

Steel, Inc has a margin of safety in dollars of $559,740. If actual sales were $2,946,000, Steel's margin of safety percentage is ____%

%19 559,740/2,946,000

a product has a selling price of $10 per unit, variable expenses of $6 per unit and total fixed costs of 35,000. If 10,000 units are sold, net operating income will be

($10-$6) x 10,000-$35,000=$5,000

A company's selling price is $90 per unit, variable cost per unit is $28 and total fixed expenses are 320,000. The number of units sales needed to earn target profit of 200,800 is

(320000/200800)/90-28)=8400 units

Sales total $500,000, and fixed costs total $300,000. The contribution margin is 68%. Profit=$ ___

(500,000 x .68)-300,000= 40000

net operating income can be calculated as

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

Assumptions of cost volume profit analyses

- Costs are linear and can be accurately divided into variable and fixed elements - In multi product companies, the sale mix is constant

Pete's putters sells each putter for $125. The variable costs is $60 per putter and fixed costs total $400000 based on this information

- The contribution margin per putter is $65 - The sale of 12,000 putters results in net operating income of $380,000

What is found above the contribution margin on a contribution margin format income statement

- sales -variable expenses

The contribution margin income statement allows users to easily judge the impact of a change in _______ on profit

- volume - cost - selling price

the profit graph allows users to easily identify:

-the profit at any given sales volume. -the sales volume required to reach the break-even point

Solving for the sales level needed to attain a target profit of $ is the same as process as solving for the sales level needed to break even

0

given a sales price of $100, variable costs of $70 and a break even point of 500 units, net operating profit of 501 units will be

100-70=30

A company with a high ratio of fixed costs

Is more likely to experience greater profits one sales are up in a company with mostly variable costs, is more likely to experience a loss when sales are down then I company with mostly variable costs

Terry's trees has reached its break-even point and has calculated its contribution margin ratio to be 70%, For each !$ increase sales

Net operating income will increase by $0.70 Total contribution margin will increase by $0.70

Water World sells wake boards and water skis and pays commissions to their salespeople based on each product's sales price. Although the wake boards sell for a higher price than the skis, the skis have a higher contribution margin per unit than the wake boards. Which of the following are true in reference to sales commissions?

The company would rather see more skis sold as it creates the higher profit per unit for the company. Salespersons will be motivated to sell more wake boards as they will create a higher commission per unit for them.

A measure of how sensative net operating income is to a given percentage change in sales dollars is known as operating

leverage

Candle central has 11440 of total variable expenses for a sales level of 600 units and 2160 of total variable expense for a sale level of 900 units. If candle central sells 500 units

a. total variable cost is $1,200 b. the variable cost per unit is $2.40

the contribution margin equals sales minus

all variable costs

When a company sells one unit above the number required to break even, the company's net operating income will

change from zero to a net operating profit

CVP analysis focuses on how profits are affected by:

selling prices, sales volume, unit variable costs, total fixed costs, mix of products sold.

The single point where the total revenue line crosses the total expense line on the CVP graph indicates

the break even point profit equals zero

break even point can be affected by

total fixed costs sales mix contri margin per unit

At the break even point:

total revenue equals total cost net operating income is zero

Profit = (selling price per unit x quanitity sold) = expense per unit x quantitty sold) = _________ expenses

variable, fixed

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

zero