Chapter 2

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?

$12,000

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?

$200

If sales increase by $50,000, what will be the net operating income for the company?

$55,000

Last month when Holiday Creations, Inc., sold 41,000 units, total sales were $310,000, total variable expenses were $235,600, and fixed expenses were $37,600. 1. What is the company's contribution margin (CM) ratio? 2. What is the estimated change in the company's net operating income if it can increase total sales by $2,100? (Do not round intermediate calculations.)

1) 310,000-235,600=74,400 74,400/310,000=0.24 2) 2,100 x 0.24 = 504

Whirly Corporation's contribution format income statement for the most recent month is shown below: Total // Per UnitSales (8100 units) $ 267,000// $ 33.00 Variable expenses 162,000// 20.00 Contribution margin 105,000// $ 13.00 Fixed expenses 54,100 Net operating income $ 51,200 Required:(Consider each case independently): 1. What would be the revised net operating income per month if the sales volume increases by 90 units? 2. What would be the revised net operating income per month if the sales volume decreases by 90 units? 3. What would be the revised net operating income per month if the sales volume is 7100 units?

1. Revised net operating income: $52,370 2. Revised net operating income: $50,030 3. Revised net operating income: $38,200

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?

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 contribution margin ratio?

60%

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

Break-even point, loss area, and profit area Contribution margin

The profit graph is based on the following linear equation:

Profit = Unit CM x Q - Fixed Expenses.

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

fixed expenses

Contribution margin equals ________.

sales minus variable cost

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

total revenue equals total costs

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

unit contribution margin

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

unit volume