Acctg 325 ch.9
Given the sales price of $375 per unit, variable cost of $125 per unit, and fixed costs of $100,000, the breakeven point in units is 400
$100,000/ (375-125)= 400 units
product A has a contribution margin per unit $12 and product B has a contribution margin per unit $6. Given a sales mix of 25:75, the weighted average contribution margin per unit is:
$12 x 25% + $6 x 75% = $7.50
Given a sales price of $300 per unit, variable cost of $180 per unit, and fixed costs of 150,000, the breakeven point in units is
$150,000/(300-180)= 1,250 units
Given a sales price of $250 per unit, variable cost of $100 per unit, and fixed costs of $60,000, the breakeven in dollars is
$60,000/( 250-100) = 400 units x 250= $100,000
A not for profit organization that provides health services to underprivileged children received $900,000 in funding last year which enabled them to serve a total of 12,000 children. Given a unit variable cost of $35 per child, the organization incurred $ ______ in fixed costs
$900,000 - (12,000 x 35) =480,000
When a company has step (or semifixed) costs
- an approximation of the relevant range may be impossible -breakeven points must be computed for each range
CVP analysis cannot be performed for the company
- breakeven points must be computed for each range - an approximation of the relevant range may be impossible
CVP analysis
- identifies risks in increasing fixed costs if volume fails - can help a firm execute its strategy
given a sales price of $250 per unit, variable cost of $110 per unit, and a break even point of 800 units, the estimated profit if 810 units are sold is
250-110= 140 contribution margin x 10 units sold above break even = 1,400
If fixed costs, F, are $500 per week, selling price per unit = $7.50, and variable cost per unit= $3.50, the break even point, in units, is:
500/4 = 125
At a given volume level, Q, total sales revenue= $100, total variable costs = $40, and total fixed cost = $20. At this volume level, the degree of operating leverage (DOL) is
60/40 = 1.50
Assume a selling price per unit of $10, and a variable cost per unit of $6. If sales increases by $4000, what is the increase in operating profit
The contribution margin ratio is 40%(10-6)/ 10. if sales increase by 4000 profit increase by $1600 (4,000 x 40%)
in a conventional CVP model of profit behavior, total revenues are depicted as
a linear function of sales volume, Q
Operating Leverage is
a measure of risk
Semi Fixed costs
are also called step costs
the term that refers to the proportion of each sales dollar available for the recovery of fixed cost is
contribution margin ratio
The degree of operating leverage (DOL) is
defined at each output, (volume) level Q
the break even point in terms of number of units (i.e. sales volume) equals fixed costs
divided by the contribution margin per unit
T/F: When doing a CVP analysis there is no need to distinguish between variable and fixed cost
false
if the degree of operating leverage (DOL) at a given output level (Q) is 10, this means that
from the output level (Q), each % change in sales leads to a 10% change in operating income
the _____ the operating leverage, the greater the sensitivity of operating income to changes in sales volumes
higher
given the choice of two options, one with high fixed cost and low unit variable cost ( high-fixed-cost option) and the other with low fixed cost and high unit variable cost (low-fixed cost option), the sales level where managers would be equally satisfied with either option is called the
indifference point
the planned of actual sales above the break even point, measured in dollar or units is referred to as
margin of safety
In CVP analysis, the term operating profit refers to
profit exclusive of unusual or non recurring items before tax
a graph that depicts (operating) profit as a function of changes in volume (units sold) is referred to as a
profit- volume graph
By definition, a firm with high operating leverage has
relatively high fixed costs
A key assumption of conventional CVP (cost volume profit) analysis is that
revenue and cost functions are linear
if a multiproduct company cannot reasonably allocate fixed costs to each product, then a constant _________ ________ must be assumed in order to build a single CVP model for profit- planning purposes
sales mix
the level of short term profitability of an organization is a function of: sales volume, selling price per unit variable cost per unit, total fixed costs, and
sales mix
the weighted average contribution margin for a multi product organization is calculated by weighting the contribution margin of each individual product by that products
sales mix % based on sales dollars for the product
Total Contribution Margin for a given accounting period equals
sales volume (in units) x contribution margin per unit
the name for a variety of methods that examine how an amount changes in response to changes in one or more factors used to predict that amount is
sensitivity analysis
If the fixed cost per month is $500, the selling price per unit is $10, and the variables cost per unit is $8, then
the break even point in dollars is $500/ (2/10)
the break even point in dollars equals
the break even point in units x the selling price per unit
operating leverage refers to
the extent to which fixed costs exist in the cost structure of an organization
the concept that is relied upon to justify linear cost and revenue functions in a conventional CVP model is
the relevant range
At the break even point
total contrition market (CM) equals total fixed costs, F
