LearnSmart: Chapter 5

The contribution margin is equal to sales minus: a. variable expenses b. fixed expenses c. net operating income d. both variable expenses and fixed expenses

a. variable expenses

Company A sold 200,000 units. Selling price is $7 per unit, contribution margin is $4 per unit, and the fixed expenses total $632,000. Company A's profit (loss) is: a. $168,000 b. $768,000 c. $18,000 d. ($32,000)

a. $168,000

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: a. $695,000 b. $2,565,000 c. $0.57 d. $1.74

a. $695,000

Place the following items in the order in which sales dollars are applied on a contribution margin income statement: a. Net income b. Variable costs c. Fixed expenses

b. Variable costs c. Fixed expenses a. Net income

To reach a target profit of $180,000, 90,000 units need to be sold. If each unit sells for $7.50, the total sales dollars needed to reach the target profit is $____________.

- $675,000

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: a. 14,688 b. 6,958 c. 21,645 d. 7,730

- 21,645

To estimate the effect on profits for a planned increase in sales, multiply the increase in units sold by the unit __________ __________.

-Contribution -Margin

Contribution margin divided by sales is the formula for ___________ ___________ ____________.

-Contribution -Margin -Ratio

A company has reached its break-even point when the contribution margin ___________ fixed expenses.

-Equals

Variable expenses/Sales is the calculation of the __________ __________ ratio.

-Variable -Expense

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

-Zero

A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. What is the BREAK-EVEN point in unit sales? a. 5,100 units b. 12,725 units c. 7,625 units

c. 7,625

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? a. 3,600 b. 1,960 c. 6,400 d. 2,800

d. 2,800

Sniffles, 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, Sniffles' sales rounded to the nearest dollar must be: a. $1,170,400 b. $1,242,408 c. $5,088,695 d. $1,520,000

d. $1,520,000

The margin of safety percentage is: a. Margin of safety in dollars divided by break-even sales in dollars b. Total budgeted (or actual) sales in dollars divided by margin of safety in dollars c. Total budgeted (or actual) sales in dollars divided by break-even sales in dollars d. Margin of safety in dollars divided by total budgeted (or actual) sales in dollars

d. Margin of safety in dollars divided by total budgeted (or actual) sales in dollars

Place the following items in the correct order in which they appear on the contribution margin format income statement. a. Contribution Margin b. Sales c. Fixed Expenses d. Net operating income e. Variable expenses

b. Sales e. Variable expenses a. Contribution Margin c. Fixed Expenses d. Net operating income

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

-Sales -Mix

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: a. 18,600 b. 8,400 c. 5,787 d. 5,162

b. 8,400

Shonda's Shoes sell for $95 per pair. If Shonda must sell 284 pairs of shoes to break-even, sales dollars needed to break-even equals $___________.

- $26,980

Plush & Cushy sells high-end desk chairs. The variable expenses per chair is $85.05 and the chairs sell for $189.00 each. The variable expense ratio for Plush & Cushy's chairs is ____________%.

- 45%

Sweet Dreams sells pillows for $25 each. Variable costs are $15 per pillow. The company is considering improving the quality of materials which will increase variable costs to $19. the company currently sells 1,200 pillows per month and expects that the improved materials would increase sales to 1,500 per month. The impact of this change on total contribution margin would be a(n) ___________ (increase/decrease) of $__________.

-Decrease -3,000

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

-Operating -Leverage

Profit = (selling price per unit x quantity sold) - (variable expense per _________ x quantity sold) - _________ expenses.

-unit -fixed

The contribution margin income statement allows users to easily judge the impact of a change in _________ on profit. (select all that apply) a. total fixed costs b. organizational structure c. Variable cost per unit d. selling price per unit e. volume of sales

a. total fixed costs c. Variable cost per unit d. selling price per unit e. volume of sales

Daisy's Dolls sold 30,000 dolls this year for $40 each. Each doll's variable cost was $19. If Daisy incurred $250,000 of fixed expenses, net operating income for the year is: a. $(249,979) b. $380,000 c. $630,000 d. $1,520,000

b. $380,000

Place the following items in order to create the equation used to calculate the variable expense ratio using total values. a. Total sales dollars b. Total variable expenses c. /

b. Total variable expenses c. / a. Total sales dollars

Which of the following must be subtracted from sales to reach the contribution margin? (select all that apply) a. Fixed overhead b. Variable overhead c. Variable direct materials d. Variable selling and administrative costs e. Fixed selling and administrative costs f. Variable direct labor

b. Variable overhead c. Variable direct materials d. Variable selling and administrative costs f. Variable direct labor

The equation used to calculate the variable expenses ratio using total values is total variable expenses divided by total: a. Contribution margin b. Fixed expenses c. Net income d. Sales

d. sales

Polly's Day Planners sells its planners for $35 each. Sales this year equals $927,500. The margin of safety is $27,300. The margin of safety in units is ____________.

- 780

Lance, Inc. has sales of 9,000 units. The contribution margin per unit is $32 and fixed costs total $120,000. Lance's profit is $__________.

168,000

Candle Central has $1,440 of total variable expense for a sales level of 600 units and $2,160 of total variable expense for a sales level of 900 units. If Candle Central sells 500 units: (select all that apply) a. total variable cost is $1,200 b. the variable cost per unit is $2.40 c. sales are $3,600 d. total fixed cost is $1,440

a. total variable cost is $1,200 b. the variable cost per unit is $2.40

Which of the following are decisions in which using CVP analysis could be useful? a. Deciding what marketing strategy to use b. Deciding what price to charge for goods and services c. Deciding to change the sick leave policy for employees d. Deciding which products to offer e. Deciding which services to offer f. Deciding what cost structure to implement

a. Deciding what marketing strategy to use b. Deciding what price to charge for goods and services d. Deciding which products to offer e. Deciding which services to offer f. Deciding what cost structure to implement

Company A produces and sells 10,000 units of its product for $10 per unit. Variable costs are $4 per unit and fixed costs total $30,000. A move to a larger facility would increase rent expense by $8,000, and allow the company to meet its demand for an additional 1,000 units. If the move is made, profits will: a. decrease by $2,000 b. increase by $6,000 c. increase by $10,000 d. decrease by $8,000

a. decrease by $2,000

At the break-even point: (select all that apply) a. net operating income is zero b. the company is experiencing a loss c. total revenue equals total cost d. the company is earning a profit

a. net operating income is zero c. total revenue equals total cost

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: a. $0 b. $374,000 c. $198,000 d. $572,000

c. $198,000

Terry's Trees has reached its break-even point and has calculated its contribution margin ratio to be 70%. For each $1 increase in sales: (select all that apply) a. net operating income will increase by $0.70 b. total contribution margin will increase by $0.70 c. net operating income will increase by $0.30 d. total contribution margin will increase by $0.30

a. net operating income will increase by $0.70 b. total contribution margin will increase by $0.70

Pete's Putters sells each putter for $125. The variable cost is $60 per putter and fixed costs total $400,000. Based on this information: (select all that apply) a. Pete's Putters is unable to make a profit b. The contribution margin per putter is $65 c. Lowering variable cost per unit to $45 would result in a contribution margin of $70 per unit d. The sale of 12,000 putters results in net operating income of $380,000

b. The contribution margin per putter is $65 d. The sale of 12,000 putters results in net operating income of $380,000

When making a decision using incremental analysis consider the: (select all that apply) a. old income statement in comparison to the new income statement b. change in cost resulting specifically from the decision. c. volume that would occur regardless of the decision d. change in sales dollars resulting specifically from the decision

b. change in cost resulting specifically from the decision. d. change in sales dollars resulting specifically from the decision

If a company only has a single product, total sales can be calculated using only: a. Sales price per unit minus variable cost per unit, then multiplied by the number of units sold b. Sales minus variable costs c. Sales price per unit multiplied by the number of units sold d. Sales minus both variable costs and fixed costs

c. Sales price per unit multiplied by the number of units sold