ACCT 2521 Chapter 5 Learnsmart

Pete's Putters sells each putter for $125 each. The variable cost is $60 per putter and his fixed costs total $400000. Based on this information:

The contribution margin per putter is $65 The sale of 12000 putters results in net operating income of $380000

CVP analysis focuses on how profits are affected by:

Total Fixed Costs Mix of Products Sold Unit Variable Cost Sales Volume Selling Prices

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

Total Sales = $95 X 284 = $26980

For a single product company the margin of safety in _________ form is calculated by dividing the margin of safety in dollars by the selling price per unit

unit

The target profit at the break-even point is:

zero

Sales total $500000 and fixed costs total $300000. The contribution margin ratio is 68%. Profit = $____________

($500000 X.68) - 300000 = 40000

What is the order of the items found on a contribution margin format income statement

(1) Sales (2) Variable Expenses (3) Contribution Margin (4) Fixed Expenses (5) Operating Net Income

Place the following items in order to create the equation used to calculate the variable expense ratio using total values / Total Variable Expense Total Sales Dollars

(1) Total Variable Expense (2) / (3) Total Sales Dollars

What is the order of the items in which sales dollars are applied con a contribution margin income statement: Fixed Expense Variable Cost Net Income

(1) Variable Cost (2) Fixed Expense (3) Net Income

Lance Inc has sales of 9000 units. The contribution margin per unit is $32 and fixed cost total $120000. Lance's profit is $__________

(9000 x 32) - 120000 = 168000

The equation method to compute unit sales to achieve target profit is: Profit =

(Unit Contribution Margin X Unit Sales) - Fixed Expenses

Net Operating Income can be calculated as:

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

Company A has sales of $500000, variable costs of $350000 and fixed costs of $150000. Company A has:

A contribution margin equal to fixed costs Reached the break even point

A company has a target profit of $204000. The company's fixed costs are $305000. The contribution margin per unit is $40. What is the BREAK-EVEN point in unit sales?

Break-Even point = 305000/40 7625

What tool may be used to calculate the volume of sales needed to cover a company's fixed expenses

Break-even

A company currently has sales of $700000 and a contribution margin ratio of 45%. As a result of increasing advertising expense by $8000 the company expects to increase sales to $735000. If this is done and these results occur net operating income will:

Change in Net operating income = ($735000-700000) X .45 - 8000 = $7750

When making a decision using incremental analysis consider the:

Change in cost resulting specifically from the decision Change in sales dollars resulting specifically from the decision

To calculate the degree of operating leverage, divide _________ ____________ by net operating income

Contribution Margin

The calculation of contribution margin (CM) ratio is:

Contribution Margin / Sales

A company sold 20000 units of its product at a selling price of $20. The variable cost per unit is $11. Fixed expenses total $150000. The company's contribution margin is:

Contribution Margin = 20000 x (20-11) $180000

CVP is the acronym for _____________ - ____________ - _____________

Cost Volume Profit

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

Equals

the amount by which sales can drop before losses are incurred is the _________ of ___________

Margin of Safety

To calculate the impact on net income using the contribution margin ration ______________ the change in _____________ by the contribution ratio

Multiply Sales

Net operating income can be estimated for any sales volume above break-even point by _____________ the number of units sold above the break-even point by the unit contribution margin

Multiplying

Paula's perfume has a target profit of $4000 per month. Perfume sells for $15 per bottle and variable costs are $13.50 per bottle. Fixed costs are $3200 per month. The number of bottles that must be sold each month to earn the target profit is :

Sales volume = (4000+3200) / (15-13.50) 4800 bottles

The break-even point calculation is affected by:

Selling Price per Unit Sales Mix Cost per Unit

Candle Central has $1440 of total variable expense for a sales level of 600 units and $2160 of total variable expense for a sales level of 900 units. If Candle Central sells 500 units:

Total variable cost per unit is $2.40 Total variable cost is $1200

Profit = (selling price per unit X quantity sold) - (variable expense per __________ X quantity sold) - ( ___________ expenses)

Unit Fixed

Company A's product sells for $90 and has a variable cost of $35 per unit. Fixed costs total $550000. If company A sells 16000 units the contribution margin per unit is

Unit contribution = 90-35 = 55

Variable Expenses / Sales is the calculation of the _________ _______ ratio

Variable Expense

Spice sells Paprika for $9 per bottle. Each bottle incurs $2.43 in variable cost. Spice incurs annual fixed cost of $825000. The variable expense ratio for Paprika is:

Variable Expense Ratio = $2.43 /$9 27%

If a company with excess capacity has an opportunity to take an order in addition to its regular sales, the sales price per unit must cover what costs?

Variable Manufacturing Cost per unit Any cost incurred by accepting the order

What must be subtracted from sales to reach the contribution margin

Variable Overhead Variable direct labor Variable Selling and Administrative Costs Variable Direct Materials

To estimate the effects of profits for a planned increase in sales multiply the increase in units sold by the unit ___________ ____________.

contribution margin