Chapter Smartbook - ACCT 2302

A company sold 750 units with a contribution margin of $120 per unit. If the company has a break-even point of 450 units, the net operating income or (loss) is ______.

$36,000

JVL Enterprises has set a target profit of $126,000. The company sells a single product for $50 per unit. Variable costs are $15 per unit and fixed costs total $98,000. How many units does JVL have to sell to BREAK-EVEN?

2,800

A 15% increase in sales resulted in a 40% increase in net income for Company A and a 60% increase in net income for Company B. Based on this, which company has the greater operating leverage?

Company B

The variable expense ratio is the ratio of variable expense to ______.

sales

A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. The BREAK-EVEN point in unit sales is ______.

7,625

A company sold 20,000 units of its product for $20 each. Variable cost per unit is $11. Fixed expenses total $150,000. The company's contribution margin is ______.

$180,000

A company's selling price is $90 per unit, variable cost per unit is $28 and total fixed expenses are $320,000. The number of unit sales needed to earn a target profit of $200,800 is ______.

8,400

Which of the following statements is correct?

The higher the margin of safety, the lower the risk of incurring a loss.

The degree of operating leverage = ______.

contribution margin ÷ net operating income

The calculation of contribution margin (CM) ratio is ______.

contribution margin ÷ sales

The break-even point calculation is affected by ______.

costs per unit sales mix selling price per unit

Assuming sales price remains constant, an increase in the variable cost per unit will ______ the contribution margin per unit.

decrease

Contribution margin is first used to cover _____ expenses. Once the break-even point has been reached, contribution margin becomes _____.

fixed profit

Total contribution margin equals ______.

fixed expenses plus net operating income

If operating leverage is high, a small percentage increase in sales produces a _____ (higher/lower) percentage increase in net operating income than if operating leverage is low.

higher

Without knowing the future, it is not obvious which cost structure is better: a structure with higher fixed costs and lower variable costs or a structure with lower fixed costs and higher variable costs.

true

CVP analysis focuses on how profits are affected by ______.

unit variable cost total fixed costs sales volume mix of products sold selling price

When preparing a CVP graph, the horizontal axis represents:

unit volume.

Profit = (selling price per unit × quantity sold) - ( _____ expense per unit × quantity sold) - _____ expenses.

variable fixed

Variable expenses ÷ Sales is the calculation for the _____ _____ ratio.

variable expense or cost

The term "cost structure" refers to the relative proportion of _____ and _____ costs in an organization.

variable fixed

The contribution margin is equal to sales minus ______.

variable expenses

CVP analysis allows companies to easily identify the change in profit due to changes in ______.

volume selling price product mix

A company sells 500 sleds per month for $80. Variable costs are $41 per unit and fixed expenses are $3,500 per month. The company thinks that using a new material would increase sales by 70 units per month. If the new material increases variable costs by $4 per unit, the impact on contribution margin would be a ______.

$450 increase

Budgeted sales are $982,000, break-even sales are $932,200, and fixed expenses are $429,000. The company's budgeted margin of safety in dollars is ______.

$49,800

Seth's Speakers had actual sales of $1,630,000 If break-even sales equals $935,000, Seth's margin of safety in dollars is ______.

$695,000

Vivian's Violins has sales of $326,000, contribution margin of $184,000 and fixed costs total $85,000. Vivian's Violins net operating income is ______.

$99,000

Profit equals:

(P × Q - V × Q) - fixed expenses.

Run Like the Wind sells ceiling fans. Target profit for the year is $470,000. If each fan's contribution margin is $32 and fixed costs total $222,640, the number of fans required to meet the company's goal is ______.

21,645

Blissful Blankets' target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets that must be sold to achieve the target profit is ______.

40,000

Adams, Inc. has sales of $100,000 with a contribution margin of $60,000 and net income of $20,000. Baron, Inc. has sales of $110,000 with a contribution margin of $44,000 and net income of $22,000. Which of the following statements are correct?

Baron's net income grows twice as fast as its sales. Adams has a higher degree of operating leverage than Baron.

Which of the following items are found above the contribution margin on a contribution margin format income statement?

Sales Variable expenses

Contribution margin:

becomes profit after fixed expenses are covered.

Margin of safety in dollars is ______.

budgeted (or actual) sales minus break-even sales

When making a decision using incremental analysis consider the ______.

change in cost resulting specifically from the decision change in sales dollars resulting specifically from the decision

A change in profits that occurs due to a change in sales and fixed expenses may be calculated as ______.

cm ratio × change in sales - change in fixed expenses

To calculate the degree of operating leverage, divide _____ _____ by net operating income.

contribution margin

An increase in sales will increase net operating income by a multiple of that increase in sales. The multiple is known as the ______.

degree of operating leverage

When a company produces and sells multiple products ______.

each product most likely has a unique contribution margin each product most likely has different costs a change in the sales mix will most likely change the break-even point

Once the break-even point is reached, the sale of an additional unit increases contribution margin by an amount that is ______ the increase in net operating income.

equal to

Cost structure refers to the relative portion of product and period costs in an organization.

false

Knowledge of previous sales is necessary when using incremental analysis to evaluate a change in profits.

false

A company currently has sales of $700,000 and a contribution margin ratio of 45%. As a result of increasing advertising expense by $8,000, the company expects to increase sales to $735,000. If this is done and these results occur, net operating income will ______.

increase by $7,750

A company with a high ratio of fixed costs:

is more likely to experience greater profits when sales are up than a company with mostly variable costs. is more likely to experience a loss when sales are down than a company with mostly variable costs.

A measure of how sensitive net operating income is to a given percentage change in sales dollars is known as operating _____.

leverage

The amount by which sales can drop before losses are incurred is the _____ of _____.

margin safety

Operating leverage is a measure of how sensitive ______ is to a given percentage change in sales dollars.

net operating income

At the break-even point ______.

net operating income is zero total revenue equals total cost

To prepare a CVP graph, lines must be drawn representing total revenue, ______.

total expense, and total fixed expense

The break-even point is reached when the contribution margin is equal to:

total fixed expenses.

The sales mix must be taken into consideration when calculating the break-even point for more than one product due to different selling prices, costs, and contribution margins among the products.

true

Company A has a contribution margin ratio of 35%. For each dollar in sales, contribution margin will increase by ______.

$0.35

Softie, Inc. produces facial tissues. The company's contribution margin ratio is 77%. Fixed expenses are $240,400. To achieve a target profit of $930,000, Softies' sales must be ______.

$1,520,000

Chitter-Chatter sells phones and has set a target profit of $975,000. The contribution margin ratio is 65%, and fixed costs are $195,000. Sales dollars needed to earn the target profit total ______.

$1,800,000

A company reported $100,000 in sales and $80,000 in variable costs at the breakeven point of 200 units. If the company sells 201 units, net profit will be ______.

$100

Ceramic Creations sells pots for $25. The variable cost per pot is $12 and 15,000 pots must be sold to break-even. If Ceramic Creations sells 25,000 pots, net operating income will be:

$130,000.

A company's break-even point is 17,000 units. If the contribution margin is $22 per unit and 26,000 units are sold, net operating profit will be ______.

$198,000

Daisy's Dolls sold 30,000 dolls this year. Each doll sold for $40 and had a variable cost of $19. Fixed expenses were $250,000. Net operating income for the year is ______.

$380,000

Adams, Inc. has sales of $100,000 with a contribution margin of $60,000 and net income of $20,000. Baron, Inc. has sales of $110,000 with a contribution margin of $44,000 and net income of $22,000. Thus, the degree of operating leverage is _____ for Adams, Inc. and _____ for Baron, Inc.

3 or three 2 or two

Paula's Perfumes has a target profit of $4,000 per month. Perfume sells for $15.00 per bottle and variable costs are $13.50 per bottle. Fixed costs are $3,200 per month. The number of bottles that must be sold each month to earn the target profit is ______.

4,800

A product has a selling price of $10 per unit, variable expenses of $6 per unit and total fixed costs of $35,000. If 10,000 units are sold, net operating income will be $ _____.

5,000 0r 5000

Terry's Trees has reached its break-even point and has a contribution margin ratio of 70%. For each $1 increase in sales ______.

net operating income will increase by $0.70 total contribution margin will increase by $0.70

The contribution margin as a percentage of sales is referred to as the contribution margin or CM _____.

ratio

The relative proportions in which a company's products are sold is referred to as _____ _____.

sales mix

The term used for the relative proportion in which a company's products are sold is ______.

sales mix

The break-even point is the level of sales at which the profit equals _____.

zero or nothing