chapter 5
CVP stands for
Cost Volume Profit
What does contribution margin mean?
The contribution margin represents the revenue that a company gains by selling each additional unit of a product or good.
When answering "what-if" questions, which of the following statements is true?
The projected sales may be influenced by changes in unit sales and/or changes in the selling price
Barrons has an operating leverage of 4 and Wilkens has an operating leverage of 3. If sales decrease, the company that will experience the greatest drop in profits is---------
barrons
Costs are separated into variable and fixed categories when using the ---------- approach
contribution
The degree of operating leverage = _______
contribution margin ÷ net operating income
The degree of operating leverage Blank______.
decreases as sales and profits rise is not a constant is greatest at sales levels near the break-even point
Estimating the fixed and variable components of a mixed cost using the ____________________ , approach involves a detailed analysis of what cost behavior should be
engineering
Simple CVP analysis can be relied on for changes in volume outside the relevant range.
false
In a least-squares regression line, the vertical intercept (a) of the line represents the total----cost
fixed
CM ratio = 1 ______ the Variable expense ratio
minus
Operating leverage is a measure of how sensitive Blank______ is to a given percentage change in unit sales.
net operating income
Once all fixed expenses have been covered, the CM ratio defines the portion of each sales dollar contributing to Blank______.
profits
The variable expense ratio is the ratio of variable expense to Blank______.
sales
CVP analysis allows companies to easily identify the change in profit due to changes in Blank______.
selling price, unit sales, unit variable costs, total fixed costs, mix of products sold
Estimating the sales volume required to earn a given amount of net income is known as
target profit analysis
What is Sales Mix
the relative proportions in which a company's products are sold
In a CVP graph, the horizontal axis represents Blank______.
unit sales
ina CVP graph, unit volume is usual represented on the _____ axis
x
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 Blank______
29%
If sales increase by 15% and the degree of operating leverage is 6, net operating income should increase by
90%
Unit sales to break even =
Fixed expenses ÷ CM per unit Correct
Dollar sales to break even
Fixed expenses ÷ CM ratio Correct
Which of the following statements is true when performing "what-if" analysis?
If the projected increase in contribution margin exceeds any projected increase in total fixed expenses, then the projected profit must increase too.
Which of the following are assumptions of cost-volume-profit analysis?
In multi product companies, the sales mix is constant. Costs are linear and can be accurately divided into variable and fixed elements.
The percentage of the variation in cost that is explained by activity is Blank______
R^2
What five factors go into a Cost-Volume-Profit (CVP) analysis?
Selling prices. Sales volume. Unit variable costs. Total fixed costs. Mix of products sold.
Operating leverage acts as a multiplier so with a high operating leverage, a small percentage increase in unit sales can produce_______________-
a much larger percentage increase in net operating income.
A change in sales mix Blank______.
from high-margin to low-margin items may decrease profits despite an increase in sales from low-margin to high-margin items may increase profits despite a decrease in sales
Simple CVP analysis is Blank______.
generally not valid outside the relevant range
What are we looking for with target profit analysis?
helps us to know how much in dollar sales a company will need to reach a certain profit point.
A measure of how sensitive net operating income is to a given percentage change in unit sales is known as operating-------------
leverage
What does Degree of Operating Leverage mean?
measures the sensitivity of a company's operating income to its sales
Using the high-low method, the fixed cost is calculated Blank______.
using either the high or low level of activity after the variable cost per unit is calculated
The contribution margin equals sales minus all Blank______ expenses.
variable
in a CVP graph dollars are on the ___ axis
y
