Chapter 2 Cost Volume Profit

Unit variable expenses is constant.

Break Even Analysis assumes that

a loss occurs

If the contribution margin is not sufficient to cover fixed expenses:

What is an assumption underlying standard CVP analysis?

In multiproduct companies, the sales mix is constant.

3.00

Winter Corporation's current sales are $500,000. The contribution margin is $300,000 and the net operating income is $100,000. What is the company's degree of operating leverage?

decrease

A shift in the sales mix from high-margin items to low-margin items can cause total profit to ________.

$200

Atlas Corporation sells 100 bicycles during a month at a price of $500 per unit. The variable expenses amount to $300 per bicycle. How much does profit increase if it sells one more bicycle?

$12,000

Atlas Corporation sells 100 bicycles during a month. The contribution margin per bicycle is $200. The monthly fixed expenses are $8,000. What is the profit from the sale of 100 bicycles?

$25,000

Future Corporation has a single product; the product selling price is $100 and variable costs are $60. The company's fixed expenses are $10,000. What is the company's break-even point in sales dollars?

40%

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company's variable cost ratio?

$16

Carver Corp. produces a product which sells for $40. Variable manufacturing costs are $18 per unit. Fixed manufacturing costs are $5 per unit based on the current level of activity, and fixed selling and administrative costs are $4 per unit. A selling commission of 15% of the selling price is paid on each unit sold. The contribution margin per unit is

Unit volume

What is represented on the X axis of a cost-volume-profit (CVP) graph?

Fixed expenses Correct

What is usually plotted as a horizontal line on the CVP graph?

sales minus variable cost

Contribution margin equals ________.

Increase in CM Decrease in BEP

A company predicting that a price increase next year will not cause unit sales to decrease. What effect would the price increase have on CM and BEP?

$15,400

A company that produces and sells a single product, has provided its contribution income for November: Sales (5,700 units) $319,200 Variable Exp. $188,100 Contribution Margin $131,100 Fixed Expenses $106,500 Net Operating Income $24,600 If the company sells 5,300 units, its net operating income should be closest to?

A CVP Graph shows

Break even point as the intersection of the total sales revenue line and the total expense line

total revenue equals total costs

Break-even point is the level of sales at which ______.

60%

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company's contribution margin ratio?

Y = bx + a

Excel depicts the least-squares regression results using the equation form _______.

unit contribution margin

Once the break-even point has been reached, net operating income will increase by the amount of the _____ for each additional unit sold.

$55,000

PresentSales$100,000 Variable expenses 50,000 Contribution margin 50,000 Fixed expenses 20,000 Net Operating income$30,000 If sales increase by $50,000, what will be the net operating income for the company?

$1 Million

Summarized data for Ralph Corporation: Selling price$200per unit Variable expenses$150per unit Fixed expenses$1,000,000per year Unit sales 25,000per year What is Ralph Corporation's margin of safety in dollars?

$21,500

Taylor Company has current sales of 1,000 units, at a selling price of $190 per unit, variable costs per unit of $76 and fixed expenses of $96,000. The company believes sales will increase by 300 units if the company introduces sales commissions as an incentive for the sales staff. The change will decrease the selling price to $175 per unit, increase variable cost per unit to $100 and decrease fixed expenses by $20,000. What is the net operating income after the changes?

60%

The current sales of Trent, Inc., are $400,000, with a contribution margin of $200,000. The company's degree of operating leverage is 2. If the company anticipates a 30% increase in sales, what is the percentage change in net operating income for Trent, Inc.?

$400,000

The following information is extracted from the records of Johnson Corporation: Target profit$120,000 Unit contribution margin$40 Fixed expenses$40,000 Contribution margin ratio (CM ratio) 0.40 Selling price$100 What are the sales dollars required to attain a target profit of $120,000?

4,000 units

The following information is extracted from the records of Johnson Corporation: Target profit$120,000 Unit contribution margin$40 Fixed expenses$40,000 Contribution margin ratio (CM ratio) 0.40 Selling price$100 What are the unit sales required to attain a target profit of $120,000?

Profit = Unit CM x Q - Fixed Expenses.

The profit graph is based on the following linear equation:

$250,000

Variable expenses for Alpha corporation are 40% of sales. What are the sales at the break even point, assuming that fixed expenses total $150,000 per year:

$300

Walton Corporation is currently selling 104 units of its product. The company is deciding the price that it should charge for a bulk order of 40 units. The variable cost per unit is $200. This order will not involve any additional fixed costs and the company's current sales will not be affected. The company targets a profit of $4,000 on the bulk order. What selling price per unit should the company quote for the bulk order?

20%

What is Ralph Corporation's margin of safety in percentage?

Break-even point, loss area, and profit area Correct

With regards to interpreation, what are the important areas that appear on a CVP graph?

Increase of $14,200

Taylor Company has current sales of 1,000 units, which generates sales revenue of $190,000, variable costs of $76,000 and fixed expenses of $96,000. The company believes sales will increase by 300 units if advertising increases by $20,000. What is the change in net operating income after the changes?

operating leverage

The measure of how sensitive net operating income is to a given percentage change in dollar sales is called _______

(Fixed Expenses + Target Net Profit)/Contribution Margin Ratio

Formula needed to obtain the dollar sales volume necessary to attain a given target profit is:

100 units

Frank Corporation has a single product. Its selling price is $80 and the variable costs are $30. The company's fixed expenses are $5,000. What is the company's break-even point in unit sales?

$33,700

Jilks Inc. contribution margin ratio is 60% and it's fixed monthly expenses are $42,500. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $127,000?

the measure of goodness of fit Correct

When using least-squares regression, R2 represents ________.

least-squares regression

Which of the following methods do managers use to estimate the fixed and variable components of mixed costs by analyzing past records of cost and activity data?