Managerial accounting chapter 3

Tommy's train is currently selling 55,000 toy trains for $50 per unit. The variable cost per train is $26 and total fixed costs are $110,000. If Tommy sells an additional 5,000 trains, profits will:

increase 120,000 (5000 x (50-26) = 120,000)

T/F: target profit analysis calculates the sales needed in dollars or units to break-even.

false

Daiseys 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

$380,000

Given $250,000 of fixed costs per year and a contribution margin ration of 40%, what amount of sales dollars is required to break-even?

$625,000 Sales = $250,000/0.4

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 Sales=($975,000+$195,000)/.65= $1,800,000

Ceramic Creations sells post 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 Net income= (25,000-15,000) x ($25-$12)= $130,000

Steel, Inc. has a margin of safety in dollars of $559,740. If actual sales were $2,946,000, Steel's margin of safety percentage is ____%.

19% = $559,740/$2,946,000 = 19%

A company with a high ratio of fixed costs

Is more likely to experience greater profits one sales are up in a company with mostly variable costs, is more likely to experience a loss when sales are down then I company with mostly variable costs

The amount remaining from sales revenue after deducting variable expenses is _____ _____.

contribution margin

CVP Analysis focuses on how profits are affected by

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

The contribution margin income statement allows uses to easily judge the impact of a change in _____ on profit.

selling price volume cost

True/False: The margin of safety is the excess of break-even sales dollars over budgeted (or actual) sales dollars.

false

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

sales mix

the degree of operatin leverage

is not a constant

If a company has sales of $100,000 a contribution margin of $40,000 and fixed expenses of $50,000 the company has a

$10,000 net operating loss

A company has total sales of 1430000. fixed expenses are 657000 and the contribution margin ratio is 67%. company profit (loss) is:

$301,000 profit= CM ratio x sales - fixed expenses + 67% x 1,430,000 - 657,000= $301,100

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, which of the following statements would be true? (Check all that apply) - The variable cost per unit is $2.40 - Total fixed cost is $1,440. - Total variable cost is $1,200 - Sales are $3,600

- The variable cost per unit is $2.40 $1,440/600= $2.40 per unit - Total variable cost is $1,200 $1,440/600= $2.40 per unit x 500 units = $1,200 total variable cost

Pete's putters sells each putter for 125$. the variable cost is 60$ per putter and fixed costs total $400,000. based on this infor

- the contribution margin per putter is 65 - the sale of 12,000 putters results in net operating income of 380,000

If sales increase by 5% and the degree of operating leverage is 4, net operating income should increase by

20% (5%x4)

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 Sales volume= (470,000 + 222,640)/32=21,645

Chrissys cupcakes has $832,000 in sales and $265,000 in fixed expenses. given a contribution margin ratio of 72%, chrissy's profit (loss) is:

334,000 Profit= CM ratio x Sales - fixed expenses

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$ (750-450) x $120 = $36,000

Sales total $500,000 and fixed costs total $300,000. The contribution margin ratio is 68%. Profit =

40000 (500,000 x 68%) - 300,000 = 40,000

Place the following items in the correct order in which they appear on the contribution margin format income statement 1. Net operating income 2. Variable expenses 3. Fixed expenses 4. Contribution marigin 5. Sales

52431

Gifts Galore had $189,000 of Sales Revenue from wrapping paper sales last year. Total contribution margin was $100,170 and total fixed expenses were $27,500. the contribution margin ratio was:

53% (100,170/189,000 = 53%)

Company A has fixed costs of $564,000 and a contribution margin of 62%. sales dollars to break-even rounded to the nearest whole dollar equals

564,000/0.62= 909,677

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

780 units =$27,300/$35 = 780 units

blissful blankets hopes to achieve a profit this year of $520,000. Each blanket has a contribution margin of $21. Fixed costs for the company are $320,000. How many blankets does blissful blankets need to sell in order to achieve its target profit?

A. 40,000 Sales volume=($520,000+$320,000)/$21

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?

Break even point in sales= fixed costs/contribution margin per unit

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

CM Ratio x Change in sales - change in fixed expenses

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

Contribition margin

The formula used to calculate the sales volume needed to achieve a target profile is:

Unit sales to attain a target profit = (Target profit + Fixed expenses) /Unit contribution margin

The break-even point calculation is affected by which of the following items? (check all that apply) - sales mix - costs per unit - selling price per unit - number of batches produced

a b c

margin of safety in dollars is:

budgeted (or acutal) sales minus break even sales

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 1200 pillows per month and expects that the improved materials would increase sales to 1500 per month. the impact of this change on total contribution margin would be a _____ (increase/decrease) of _____ ( enter either increase or decrease and the dollar amount as a whole number)

decrease 3,000 (1500 x (25-19))-(1200 x (25-15))=3000

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:

decrease by $2,000 New contribution margin= $6,000 (1,100 x ($10-$4)) - $8,000 new cost = ($2,000) decrease in profits

A companys current sales are $300,000 and fixed expenses total $225,000. the contribution margin ratio is 30%. the company has decided to expand production which is expected to increase sales by $70,000 and fixed expenses by $15,000. if these results occer net operating income will

increase by 6000 change in net operating income = 70,000 x 30% - $15,000 = 6,000 increase

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

leverage

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:

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

The single point where the total revenue line crosses the total expense line on the CVP graph indicates:

profit equals zero, the break-even point

Factors which determine whether a cost structure with higher variable costs is better than one with higher fixed costs include:

year to year fluctuations the attitude of owners toward risk long-run trends in sales

Company A's product sells for $90 and has a variable cost of $35 per unit. fixed costs total $550,000. if company A sells 16,000 units, the contribution margin per unit is:

$55 Unit contribution margin = 90-35=55

Company A's product sells for 90$ and has a variable cost of 35$ per unit. Fixed costs total $550,000. If company A sells 16,000 units, the contribution margin per unit is:

$55, ($90-$35=$55)

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

45%

A company is currently selling 10,000 units of product. the selling price per unit is $40 per unit and the contribution margin is 27$ per unit. the company thinks spending $50,000 on advertising will increase sales by 750 units per month and allow them to increase the selling price to $45 per unit. if this is correct, the company should

Accept the idea bc the profit will increase by $24,000 - an increase in selling price of $5 will increase the contribution margin $5 (from 27$ to 32$). the increase contribution margin of $74,000 ((10,750 x $32) - (10,000 x $27)) - the additional fixed costs of $50,000 = a profit increase of $24,000