Accounting 2 Chapter 5 smartbook

The contribution margin statement is ordinarily used by those ______.

inside the company

the contribution margin statement is primarily used for _____

internal decision making

The margin of safety percentage is_____

margin of safety in dollars ÷ total budgeted (or actual) sales in dollars

Users can easily judge the impact on profits of changes in selling price, cost or volume when using an income statement constructed under the ______ approach.

contribution margin

total contribution margin equals ____

fixed expenses plus net operating income

(single product) Profit equals:

(P × Q - V × Q) - fixed expenses.

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

equals

Company A has a contribution margin ratio of 35%. For each dollar in sales, contribution margin will increase by Blank______

$0.35

Softie, Inc. produces facial tissues. The company's contribution margin ratio is 77%. Fixed expenses are $240,400. To achieve a target profit of $930,000, Softies' sales must be

$1,520,000 dollar sales to attain the target profit = target profit + fixed expenses / CM ratio 930,000+240,400/0.77 = 1,520,000

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

$30

Budgeted sales are $982,000, break-even sales are $932,200, and fixed expenses are $429,000. The company's budgeted margin of safety in dollars is

$49,800 margin of safety in dollars = total budgeted (or actual) sales - break-even sales 982,000-932,200=49,800

Company A's product sells for $90 and has a variable cost of $35 per unit. Fixed costs total $550,000. If Company A sells 16,000 units, the contribution margin per unit is ______.

$55 unit contribution margin = product cost - variable cost 90-35=55

Seth's Speakers had actual sales of $1,630,000 If break-even sales equals $935,000, Seth's margin of safety in dollars is Blank______

$695,000 Margin of safety in dollars = total budgeted (or actual sales) - Break-even sales 1,630,000-935,000=695,000

Company A has sales of $500,000, variable costs of $350,000, and fixed costs of $150,000. Company A has ______.

- reached the break-even point - a contribution margin equal to fixed cost

Which of the following items are found above the contribution margin on a contribution margin format income statement?

- sales - variable expenses

JVL Enterprises has set a target profit of $126,000. The company sells a single product for $50 per unit. Variable costs are $15 per unit and fixed costs total $98,000. How many units does JVL have to sell to BREAK-EVEN?

2,800 fixed cost/unit CM 98,000/35= 2,800

Which tool can be used to easily calculate the change in profit resulting from a change in sales price, sales volume, variable costs, or fixed costs?

CVP analysis

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

False

True or false: CVP analysis investigates company personnel policies, business values, and performance measures for a specific company.

False

Contribution margin:

becomes profit after fixed expenses are covered

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

After reaching the break-even point, a company's net operating income will increase by the ______ ________ per unit for each additional unit sold

contribution margin

The contribution margin as a percentage of sales is referred to as the contribution margin or CM _____

ratio

The variable expense ratio equals variable expenses divided by

sales

The variable expense ratio is the ratio of variable expense to ______

sales

CM ratio is equal to 1 - ______ ______ ratio.

variable expense

the contribution margin is equal to sales minus _______

variable expenses

Jump-It Corporation has a margin of safety of $272,000. The company sold 100,000 units this year. If the company sells each unit for $17, the margin of safety percentage is

16% Margin of safety percentage = margin of safety in dollars / total budgeted (or actual) sales in dollars 272,000 / (100,000x17) = 16%

The calculation of contribution margin (CM) ratio is ______.

contribution margin / sales

Which of the following statements is correct? - the higher the margin of safety, the lower the risk of incurring a loss - the higher the margin of safety, the higher the risk of incurring a loss - the risk of loss Is not impacted by the margin of safety

- the higher the margin of safety, the lower the risk of incurring a loss

Once the break-even point is reached, the sale of an additional unit increases contribution margin by an amount that is ______ the increase in net operating income.

equal to

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

zero

Marjorie's Mugs sold 300 mugs last year for $20 each. Variable costs were $7 per mug and total fixed costs were $1,700. Marjorie's Mugs' profit was ______.

$2,200 Profit = amount sold x (product cost - variable cost) - total fixed cost 300 x (20-7) -1,700 =2,200

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

- selling price - cost - volume

Pete's Putters sells each putter for $125. The variable cost is $60 per putter and fixed costs total $400,000. Based on this information ______.

- the sale of 12,000 putters results in net operating income of $380,000 - the contribution margin per putter is $65 12,000 units x $65 contribution margin = 780,000 - 400,000 = 380,000

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 required to meet the company's goal is Blank______

21,645 (470,000+222,640)/32 = 21,645

Spice sells paprika for $9.00 per bottle. Variable cost is $2.43 per bottle and Spice's annual fixed costs are $825,000. The variable expense ratio for paprika is Blank______

27% variable expense ratio = variable cost / product cost 2.43/9.00 = 27%

The Cutting Edge sells ice skates. Total sales are $845,000, total variable expenses are $245,050 and total fixed expenses are $302,000. The variable expense ratio is

29% Variable expense ratio = total variable expenses / sales 245,050/845,000=29%

Pretty in Pearls sold 95 necklaces last month. If variable cost per unit is $40 and fixed costs total $3,085, the company's total variable cost was ______.

3,800 total variable cost = variable cost per unit X units sold 95x40=3,800

Paula's Perfumes has a target profit of $4,000 per month. Perfume sells for $15.00 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 Blank______

4800 unit sales to attain the target profit= target profit + fixed expenses / Unit CM Unit CM = product price - variable cost 15-13.50 = 1.50 4000+3200/1.50 = 4800

Company A has fixed costs of $564,000 and has set a target profit of $800,000. If Company A has a contribution margin ratio of 62%, sales dollars needed to reach the target profit equals

$2,200,000 (564,000+800,000)/.62 = 2,200,000

Terry's Trees has reached its break-even point and has a contribution margin ratio of 70%. For each $1 increase in sales Blank______

- total contribution margin will increase by $0.70 - net operating income will increase by $0.70

at the break-even point_____

- total revenue equals total cost - net operating income is zero

Candle Central has $1,440 of total variable expense for a sales level of 600 units and $2,160 of total variable expense for a sales level of 900 units. If Candle Central sells 500 units ______.

- total variable cost is $1,200 1,400/600 = 2.40 per unit X 500 units =1,200 - the variable cost per unit is $2.40 1,400/600=2.40

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

1. fixed 2. profit

Marjorie's Mugs sold 300 mugs last year for $20 each. Variable costs were $7 per mug and total fixed costs were $1,700. Marjorie's Mugs' profit was

2,200 profit = quantity x (selling price - variable cost per unit) - total fixed cost 300x(20-7)-1700=2200

Given sales of $1,452,000, variable expenses of $958,320 and fixed expenses of $354,000, the contribution margin ratio is Blank______.

34% contribution margin ratio = (sales - variable expenses) / sales (1,452,000-958,320) / 1,452,000 = 34%

A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. The BREAK-EVEN point in unit sales is_____

7,625 Break-even point = fixed cost / contribution margin per unit 305,000/40=7625

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

53% Contribution margin ratio = contribution margin / sales 100,170/189,000 = 53%

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

65% CM ratio = contribution margin / sales CM ratio = sales - variable expenses / sales CM ratio = 1 - variable expense ratio 1-35%=65%