Chapter 7: Cost-Volume Profit Analysis

The Lampost Production Company has $6,000 of fixed expenses. The manager reported that the company's operating income wass $0, and the contribution margin was 40%. What are the company's sales in dollars using the shortcut approach to the contribution margin ratio?

$15,000

Tara's Sewing Service sells yarn. Tara expects to sell 400 units of yarn this month. The manager forecasted the sale of 200 units of yarn to break even. What is the margin of safety in units?

200 units

Marla's Publishing Service has $4,800 of fixed expenses. The manager reported the company's operating income as $0, and the contribution margin was 45%. What are the company's sales in dollars, rounding to the nearest dollar, using the shortcut approach to the contribution margin ratio?

$10,667

Sam's Appliance Outlet has variable expenses of 40% of sales. The manager reported monthly fixed expenses of $270,000. The monthly target operating income is $75,000. What is the monthly margin of safety in dollars if the manager at Sam's Appliance Outlet achieves the operating income goal?

$125,000

Violet Industries held an annual meeting and reported a new annual budget of $50,000 in total fixed expenses. The new selling price per unit is $58, and the new variable expense per unit is $30. If the manager can reduce fixed expenses by another $10,000, what is the effect on breakeven sales?

$357 decrease in breakeven units

Landstown College changed the budget for the next fiscal year. The new budget includes the following: Total fixed expenses $52,000 Selling price per unit $58 Variable expenses per unit $32 What is the impact on the breakeven sales in units if the new manager reduces fixed expenses by $10,000?

$385 decrease in breakeven units

The manager at TV Land Productions reported total sales revenue of $900,000. The variable expenses were $300,000, and there were $325,000 of total fixed expenses. Calculate the contribution margin ratio and use the contribution margin shortcut formula to predict the breakeven point in dollars.

$4,875

The manager at Vertical Wire Productions reported total sales revenue of $800,000. The variable expenses were $600,000, and there were $125,000 of total fixed expenses. Use the contribution margin shortcut formula to predict the breakeven point in dollars.

$500,000

MaryJane's Bakery manufactures and sells a variety of baked goods. The selling price per dozen of chocolate glazed dunuts is $8.00. The variable costs to produce the chocolate glazed donuts are $3.75, and total fixed costs are $3,800. What are the breakeven sales in dollars?

$7160

The Beach Sea Shop has variable expenses of 35% of sales. The manager reported monthly fixed expenses of $250,000. The monthly target operating income is $65,000. What is Beach Sea Shop's operating leverage factor at the target level of operating income?

4.85

Terry's Frame & Art Shoppe produces and sells picture frames to clients at $8.00 per picture frame. The variable cost to produce each picture frame is $3.25 per picture frame. The fixed costs are $3,000 per month. What is the firm's contribution margin ratio?

59.37%

Daphne's Planter Company produces and sells planters. The manager reported $6,200 in fixed expenses, operating income of $0 at the breakeven point, and a contribution ratio of 60%. What is the company's breakeven point in units using the shortcut approach?

6200 units

Brandy's Balloon Service currently sells 1,000 balloon bundles per month. The competition in the balloon industry continues to soar within a thirty-mile vicinity of the service location. Brandy was considering reducing the sales price of balloon bundles to $10 per bundle. If the variable expenses remain at $2.00 per balloon bundle and fixed expenses remain at $5,000, how many balloon bundles will Brandy need to sell to break even?

625 balloon bundles

How might a change in fixed costs affect the contribution margin?

A change in fixed costs does not affect the contribution margin

A manager will NOT use CVP analysis to conduct sensitivity analysis. True or False

False

Breakeven point is the sales level at which operating income is never zero. True or False

False

Lower variable costs increase the contribution margin and lower the breakeven point. True or False

False

weighted average contribution margin formula

contribution margin/ sales revenue

The horizontal y-axis on the CVP graph represents ________.

dollars

CVP Analysis

expresses the relationships amongst costs, volume, and organizational profits.

The weighted-average contribution margin ________.

is computed as the total contribution margin divided by total sales

(Sales revenue × contribution margin ratio) - fixed costs represents which of the following?

operating income

The Heart Foundation is a charity that produces and sells two products, red hearts and purple hearts, to promote health in the community. The manager estimates clients will purchase 2,400 red hearts and 1,100 purple hearts by the end of the next period. The unit contribution margins for red hearts and purple hearts are $2.75 and $3.40. What is the weighted-average unit contribution margin?

$2.95

Grandma's Yarn Factory produces and designs two specialty yarn products, green yarn and scarlet yarn. The manager estimates that clients will purchase 3,000 green yarn spools and 1,100 scarlet yarn spools by the end of the next period. The unit contribution margins for green yarn and scarlet yarn are $2.80 and $3.50. What is the weighted-average unit contribution margin?

$2.99

Rachel's Candelabra Shoppe sells candles to clients for $6.00 each. The variable cost to produce each candle is $2.25 per candle. The fixed costs are $2,800 per month. What is the firm's contribution margin per candle?

$3.75

Daphne's Floral Service has a monthly target operating income of $30,000. Variable expenses are 15% of sales. The manager reported fixed expenses of $20,000. What is Daphne Floral's operating leverage factor at the target level of operating income?

1.67

The Coffee Factory sells two products, supreme and mild. The supreme sells for $120 per case (unit) with variable costs of $90 per unit. The mild sells for $90 per unit with variable costs of $10 per unit. The manager reported $42,600 total fixed costs. The Coffee Factory usually sells three supreme brands for each two mild brands. What is the breakeven point in total units?

852 units

The Landscape Company produces and sells large and medium landscaping tiles. The large landscaping tiles sell for $90 per unit with variable costs of $30 per unit. The medium landscaping tiles sell for $60 per unit with variable costs of $30 per unit. The total fixed costs for the company is $42,000. The Landscape Company usually sells three large tiles for every two medium tiles. What is the breakeven point in units?

875 units

MaryJane's Bakery manufactures and sells a variety of baked goods. The selling price per dozen of chocolate glazed donuts is $8.00. The variable costs to produce the chocolate glazed donuts are $3.75, and total fixed costs are $3,800. How many dozen chocolate glazed donuts must the manager sell to break even?

895 dozen

operating leverage

a company's amount of relative fixed and variable costs.

Step 4 of the CVP graph represents the ________.

breakeven point

What refers to the excess of sales revenue over variable expenses?

contribution margin

break even sales formula

sales in dollars / weighted average contribution margin

operating leverage formula

target income + expenses / target income

sales mix

the combination of products that make up total sales.

margin of safety

the excess of actual or expected sales over breakeven sales