AC 361 Chapter 5
Given sales of $1,452,000, variable expenses of $958,320 and fixed expenses of $354,000, the contribution margin ratio is ______.
Contribution margin ratio = ($1,452,000 - $958,320) ÷ $1,452,000 = 34%.
CVP is the acronym for
Cost Volume Profits
A simpler form of the CVP graph is called the ? graph
Profit
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
$5000
Profit equals ______.
(P × Q) - (V × Q) - fixed expenses
Net operating income equals ______.
(unit sales - unit sales to break even) × unit contribution margin
Which tool can be used to easily calculate the change in profit resulting from a change in sales price, sales volume, variable costs, or fixed costs?
CVP analysis
Users can easily judge the impact on profits of changes in selling price, cost or volume when using an income statement constructed under the ______ approach.
Contribution
When constructing a CVP graph, the vertical axis represents ______.
Dollars
Simple CVP analysis can be relied on for changes in volume outside the relevant range.
False
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 ______.
Net operating income = $184,000 - $85,000 = $99,000
Which of the following is needed to calculate profit?
Unit contribution margin, unit sales, and total fixed costs
The contribution margin equals sales minus ______.
all variable costs
CVP analysis is based on some ? that may be violated in practice, but the tool is still generally useful.
assumptions
When a company sells one unit above the number required to break-even, the company's net operating income will ______.
change from zero to a net operating profit
The calculation of contribution margin (CM) ratio is ______.
contribution margin ÷ sales
According to the CVP analysis model and assuming all else remains the same, profits would be increased by a(n) ______.
decrease in the unit variable cost
Total contribution margin equals ______.
fixed expenses plus net operating income
Fantastic Frames sells units for $15 each. Variable costs total $6 per unit, and fixed costs total $90,000. If the number of units being sold increases by 2,000, net operating income will ______.
increase $18,000
The contribution margin statement is ordinarily used by those ______.
inside the company only
The contribution margin statement is primarily used for ______.
internal decision making
If the total contribution margin is less than the total fixed expenses, a ______ occurs.
net loss
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
To simplify CVP calculations, it is assumed that ______ will remain constant.
selling price
The contribution margin income statement allows users to easily judge the impact of a change in ______ on profit.
selling price cost volume
The profit graph allows users to easily identify ______.
the sales volume required to reach the break-even point the profit at any given sales volume
CM ratio is equal to 1 - ? ratio
variable expense
The break-even point is the level of sales at which the profit equals
zero
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 ______.
Net operating income =30,000 × ($40 - $19) - $250,000 = $380,000
The equation used to calculate the variable expense ratio using total values is total variable expenses divided by total ______.
Sales
Which of the following are assumptions of cost-volume-profit analysis?
Costs are linear and can be accurately divided into variable and fixed elements. In multi product companies, the sales mix is constant.
Contribution margin is first used to cover ? expenses. Once the break-even point has been reached, contribution margin becomes ?
Fixed, Profits
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 ______.
Variable expense ratio = $245,050 ÷ $845,000 or 29%.
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 vertical distance between the total revenue line and the total expense line on a CVP graph represents the total ______.
profit or loss
CVP analysis allows companies to easily identify the change in profit due to changes in ______.
selling price volume costs
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
When making a decision using incremental analysis consider the ______.
change in sales dollars resulting specifically from the decision change in cost resulting specifically from the decision