ACC 202 Chapter 5 Smartbook
The calculation of contribution margin (CM) ratio is ______.
contribution margin ÷ sales
CVP is the acronym for ______-______________-___________ .
cost volume profit
Gifts Galore had sales revenue of $189,000. Total contribution margin was $100,170 and total fixed expenses were $27,500. The contribution margin ratio was ______.
53% Reason: $100,170 ÷ $189,000 = 53%
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
When a company sells multiple products, an increase in total sales always results in an increase in total profits.
False Reason: A shift from high-margin items to low-margin items may cause total sales to increase at the same time as causing total profits to decrease.
o determine the slope, intercept and R² using Excel, select the Trend/Regression type ______.
Linear
The percentage of the variation in cost that is explained by activity is ______.
R²
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 Reason: $98,000 ÷ ($50 - $15) = 2,800
Using the high-low method, the fixed cost is calculated ______.
- using either the high or low level of activity - after the variable cost per unit is calculated
Spice sells paprika for $9.00 per bottle. Variable cost is $2.43 per bottle and Spice's annual fixed costs are $825,000. The variable expense ratio for paprika is ______.
27% Reason: $2.43 ÷ $9.00 or 27%
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 ______.
29% Reason: $245,050 ÷ $845,000 or 29%
The contribution margin equals sales minus all ______ expenses.
variable
The slope of the regression line represents the ______ cost per unit of activity.
variable
When using the high-low method, the slope of the line equals the __________ cost per unit of activity.
variable
When using the high low method, the change in cost divided by the change in units equals ______.
variable cost per unit
To convert the formula for sales dollars required to attain a target profit to sales dollars required to break-even, set the target profit to $___________.
0
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 Reason: $95 x 284 = 26980
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
When preparing a multi-product break-even analysis, the assumption is ordinarily made that the ______ will not change.
sales mix
The statistic R² ______.
is a measure of goodness of fit
When using the high-low method, fixed costs are calculated after variable costs are determined.
True Reason: When using high-low, the variable cost per unit of activity is calculated by dividing the change in cost by the change in activity. That amount is plugged into one of the activity levels to determine the total fixed cost.
To analyze mixed costs with the high-low method, begin by identifying the periods with the lowest and highest level of ______.
activity
To analyze mixed costs with the high-low method, begin by identifying the period with the lowest level of _____________.
activity and its related cost
Solving for the sales level needed to achieve a profit of zero is the same process as solving for the sales level needed to ______.
break-even
The sales volume level at which profits equal zero is the ______.
break-even point
Multiplying unit selling price times the number of units required to break-even is one way to calculate ______.
break-even sales dollars
The variable cost per unit using the high-low method is calculated as ______.
change in cost ÷ change in units (activity)
To prepare a scattergraph plot in Excel, highlight the data and select the "Scatter" subgroup from the ________ group within the Insert tab.
charts
When using the high-low method, if the high or low levels of cost do not match the high or low levels of activity, ______.
choose the periods with the highest and lowest levels of activity and their associated costs
Costs are separated into variable and fixed categories when using the _________ approach.
contribution
In a CVP graph, the vertical axis represents ______.
dollars
In a least-squares regression line, the vertical intercept (a) of the line represents the total _______ cost.
fixed
o calculate the break-even point (in unit sales and dollar sales), managers can use the equation method or the ________ method.
formula
The best fitting line minimizes the sum of the squared errors when using ______.
least-square regression
A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called _____________.
least-squares regression
It makes sense to perform a high-low or regression analysis if a scattergraph plot reveals _____________ behavior.
linear cost
CM ratio = 1 ______ the Variable expense ratio.
minus
A simpler form of the CVP graph is called the _________ graph.
profit
The vertical distance between the total revenue line and the total expense line on a CVP graph represents the total ______.
profit or loss
In a CVP graph, the horizontal axis represents __________.
unit sales
Once all fixed expenses have been covered, the CM ratio defines the portion of each sales dollar contributing to __________.
profits
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 Reason: ($975,000 + $195,000) ÷ 0.65 = $1,800,000
Adam's Sports Store sells an item with a contribution margin ratio of 55% and total fixed costs of $8,000. If Adam's generates additional sales of $25,000 for this item, net operating income will increase by ______.
$13,750 Reason: $25,000 × 55% = $13,750 increase
Anne's Antique Store sells an item with a contribution margin ratio of 29% and total fixed costs of $15,000. If the store generates an additional $60,000 of sales for the item this year, net operating income will increase by ______.
$17,400 Reason: $60,000 × 29% = $17,400
ABC Inc. sells a product for $10 per unit. Variable costs are $4 per unit and total fixed costs equal $40,000. If sales increase from 10,000 units to 14,000 what will be the increase in overall profit?
$24,000 Reason: ($10 - $4) = $6 CM per unit × 14,000 units = $84,000 - $40,000 or $44,000 in profits - current profits of $20,000 ($6 CM × 10,000 - $40,000) = $24,000 increase.
Cakes by Jacki has $144,000 of fixed costs per year. The contribution margin ratio is 59%. The sales dollars to break-even rounded to the nearest dollar equals ______.
$244,068 Reason: Sales = $144,000 ÷ 0.59 = $244,068
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 Reason: Net operating income =30,000 × ($40 - $19) - $250,000 = $380,000
Shonda's Shoes sell for $95 per pair. If Shonda must sell a total of 284 pairs of shoes to break-even, and a total of 450 pairs to achieve her target profit, sales dollars needed to earn the target profit equals ______.
$42,750 Reason: $95 × 450 = $42,750
A company's current profit is $25,000 for a product that sells for $100 and has a unit contribution margin of $65. Fixed costs are $40,000. If the company increases sales by 50 units, total profit will increase by $_________.
3,250 Reason: Increase in total profit = Contribution margin per unit x Increased sales units >> $65 x 50 = 3,250
Given sales of $1,452,000, variable expenses of $958,320 and fixed expenses of $354,000, the contribution margin ratio is __________.
34% Reason: ($1,452,000 - $958,320) ÷ $1,452,000 = 34%
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 Reason: ($4,000 + $3,200) ÷ ($15.00 - $13.50) = 4,800 bottles.
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 Reason: ($520,000 + $320,000) ÷ $21 = 40,000
A company needs to sell 90,000 units to reach the target profit of $180,000. If each unit sells for $7.50, the total sales dollars needed to reach the target profit is $______________.
675,000 Reason: 90,000 x $7.5 = 675,000
Company A has fixed costs of $564,000 and has set a target profit of $800,000. If Company A has a contribution margin ratio of 62%, sales dollars needed to reach the target profit equals ______.
$2,200,000 Reason: ($564,000 + $800,000) ÷ 0.62 = $2,200,000
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 ________________.
$909,677 Reason: $564,000 ÷ 0.62 = $909,677
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 Reason: Net operating income = $184,000 - $85,000 = $99,000
Which of the following are assumptions of cost-volume-profit analysis?
- In multi product companies, the sales mix is constant. - Costs are linear and can be accurately divided into variable and fixed elements.
Which of the following statements are true?
- Scattergraphs are a way to diagnose cost behavior. - Plotting data on a scattergraph is an important diagnostic step.
The break-even point can be affected by ______.
- contribution margin per unit - sales mix - total fixed costs
The break-even point calculation is affected by ______.
- costs per unit - selling price per unit - sales mix
When a company produces and sells multiple products ______.
- each product most likely has different costs - each product most likely has a unique contribution margin - a change in the sales mix will most likely change the break-even point
Target profit analysis _______________.
- estimates sales needed to earn a given profit - is similar to break-even analysis
A change in sales mix ______.
- from low-margin to high-margin items may increase profits despite a decrease in sales - from high-margin to low-margin items may decrease profits despite an increase in sales
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
The profit graph allows users to easily identify ______.
- the profit at any given sales volume - the sales volume required to reach the break-even point
The high-low method ______.
- uses only two data points - is based on periods where the activity tends to be unusual
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 Reason: Break-even point = $305,000 ÷ $40 = 7,625.
The contribution margin as a percentage of sales is referred to as the contribution margin or CM _____________.
ratio
The variable expense ratio equals variable expenses divided by ______.
sales
The variable expense ratio is the ratio of variable expense to ______.
sales
To simplify CVP calculations, it is assumed that ______ will remain constant.
selling price
Estimating the sales volume required to earn a given amount of net income is known as ____________ analysis.
target profit
The rise-over-run formula for the slope of a straight line is the basis of ______.
the high-low method
