Accounting Chap 2

company A has a contribution margin ratio of 35%. for each dollar in sales, contribution margin will increase by

$0.35

if a company has sales of $100,000, a contribution margin of $40,000, and fixed expenses of $50,000 the company has a

$10,000 net operating loss =CM $40,000 minus fixed expenses $50,000

total contribution margin equals

fixed expenses plus net operating income

the vertical distance between the total revenue line and the total expense line on a cvp graph represents the total

profit or loss

the variable expense ratio is the ratio of variable expenses to

sales

variable expenses/ sales is the calculation for the

variable expense ratio

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

variable expenses, sales

profit= (selling price per unit x quantity sold) - (___ expense per unit x quantity sold) - ___ expenses

variable, fixed

the contribution margin income statement allows users to easily judge the impact of a change in ___ on profits

volume, selling price, and cost

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

zero

when constructing a cvp graph, the vertical axis represents

dollars

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

net loss

to convert the formula for sales dollars required to attain a target profit to sales dollars required to break even, set the target profit to

$0

ceramic creations sells pots for $25. the variable cost per pot is $12 and 15,000 pots must be sold to break even. if ceramic creations sells 25,000 pots, net operating income will be

$130,000 =(25,000-15,000)x(25-12)

Adam's sports store has a contribution margin ratio of 55% and has already passed the break even point for the year. if adam's generates additional sales of $250,000 by the end of the year, net operating income for the year will increase by

$137,000= 250,000x55%

anne's antique store has a contribution margin ratio of 29%. the break even point has been reached. if the store generates an additional $600,000 of sales for the year, net operating income will increase by

$174,000= 600,000x29%

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= 300 x(20-7)-1,700

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

$30

a company sold 750 units with a contribution margin of $120 per unit. if the company has a break even point of 450 units, the net operating income or loss is

$36,000 =(750-450)x120

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

$380,000= 30,000 x(40-19)-250,000

sales total $500,000, and fixed costs total $300,000. the contribution margin ratio is 68%. profit=

$40,000

a company sells 500 sleds per month for $80. variable costs are $41 per unit and fixed expenses are $3,500 per month. the company thinks that using a new material would increase sales by 70 units per month. if the new material increases variable costs by $4 per unit, the impact on net income would be

$450 increase= the current CM is $39 per unit (80-41) or 19,500(500 units x 39) total. the new CM would be 35 per unit (39-4) or 19,500(570 units x 35), an increase of 450

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 =90-35

vivian's violins has sales of $326,000, contribution margin of $184,000, and fixed costs total $85,000. vivian's violins net operating income is

$99,000 =184,000-85,000

JVL enterprises has a set 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 breakeven

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

run like the wind sells ceiling fans. target profit for the year is $470,000. if each fan's CM is $32 and fixed expenses total $222,640, the number of fans required to meet the company's goal is

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

spice sells paprika for $9 per bottle. each bottle incurs $2.43 in variable cost. spice incurs annual fixed costs of $825,000. the variable expense ratio for paprika is

27%=2.43/9

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%= 245,050/845,000

a company has total sales of $1,430,000. fixed expenses are $657,000 and the CM ratio is 67%. company profit (loss) is

301,100= profit= CM ratio x sales - fixed expenses. 67% x 1,430,000 - 657,000

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

34%=(1,452,000-958,320)/1,452,000

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

42,750=95x450

Paulas 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 bottles

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, operating income will be

5,000=(10-6)x10,000-35,000

gifts galore had $189,000 of sales revenue from wrapping paper sales last year. total contribution margin was $100,170 and total fixed expenses were $27,500. the contribution margin ratio was

53%=100,170/189,000

a company has a target profit of $204,000. the company's fixed costs are $305,000. the CM per unit is $40. what is the break even point in unit sales

7,625= 305,000/40

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)/90) = $756,000 $756,000/$90 = 8400 units

company A has fixed costs of $564,000, and a CM of 62%. sales dollars to break even rounded to the nearest whole dollar equals

909,677= 564,000/62%

a change in profits that occurs due to a change in sales and fixed expenses may be calculated as

CM ratio x change in sales-change in fixed expenses

Bluin Corporation pays its salesperson a flat salary of $5,750 per month and is considering paying her $30 per unit instead. Current unit sales are 250 per month, but Bluin believes the compensation change will increase unit sales by 50%. Bluin's current contribution margin is $100 per unit. If Bluin switches the compensation and sales grow as expected, net operating income will:

Increase by $7,000 per month current net operating income=(100x250)-5750=19250. with the change salary becomes a variable cost and net operating income would be : (100-30)x250x150%=26250 an increase of 7000 per month

Goldin Corporation currently pays its salesperson a flat salary of $5,000 per month and is considering paying him $20 per unit instead. Sales are currently 200 units per month. Goldin believes the compensation change will increase unit sales by 50%. The current contribution margin is $80 per unit. Should Goldin implement the change?

Yes, income will increase by $7,000. Current income: ($80 x 200) - $5,000 = $11,000 With the change: ($80 - $20) x 200 x 150% = $18,000, an increase of $7,000 per month.

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

a contribution margin equal to fixed costs, reached the break even point

the contribution margin equals sales minus

all variable costs

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

change from zero to a net operating profit

when making a decision using incremental analysis

change in sales dollars resulting specifically from the decision, change in cost resulting specifically from the decision

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

an income statement constructed under the ___ approach allows users to easily judge the impact on profits of changes in selling price, cost, or volume

contribution margin

to calculate profit, multiply the ___ per unit by sales volume and subtract total fixed cost

contribution margin

the calculation of contribution margin (CM) ratio is

contribution margin/ sales

assuming sales price remains constant, an increase in the variable cost per unit will ___ the CM per unit

decrease

a company currently has sales of $700,000 and a contribution margin ratio of 45%. as a result of increasing advertising expense by $8,000, the company expects to increase sales by $735,000. if this is done and these results occur, net operating income will

increase by $7,750= (735,000-700,000) x45%-8,000

when the analysis of a change in profits only considers the costs of the revenues that will change as the result of the decision, the decision is being made using ___

incremental analysis

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

profit equals zero, the break even point

a company is currently selling 10,000 units of production monthly for $40 per unit. the unit contribution margin is $27. the company believes that spending $50,000 per month on advertising will allow them to increase the selling price to $45 and that sales will increase by 750 units per month. which of the following statements is true

the company should accept the idea because profit will increase by $24,000= an increase in selling price of $5 will increase the contribution margin $5 (from $27 to $32). the increased CM of 74,000((10,750x32)-(10,000x27))- the additional fixed costs of 50,000= profit increase of 24,000

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 contribution margin per putter is $65, the sale of 12,000 putters results in net operating income pf $380,000= 12,000x65=780,000-400,000

timmy's trees has reached its break even point and has calculated its contribution margin ratio to be 70%. for each $1 increase in sales

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

to prepare a cvp graph, lines must be drawn representing total revenue,

total expense and total fixed expense

the break even point is reached when the contribution margin is equal to

total fixed expenses

at the break even point

total revenue equals total cost, net operating income is zero