ACC 216 Chapter Five (exam one)

Place the following items in order to create the equation used to calculate the variable expense ratio using total values:

Total variable expenses/Total sales dollars

After reaching the break-even point, a company's net operating income will increase by the ______ ______ per unit for each additional unit sold:

contribution margin

An income statement constructed under the _____ approach allows users to easily judge the impact of profits of changes in selling price, cost or volume:

contribution margin

To calculate the degree of operating leverage, divide ______ ______ by net operating income:

contribution margin

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

To solve for net operating income at any sales volume above the break-even point requires knowledge of the:

projected unit sales break-even unit sales contribution margin per unit

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

total fixed expenses

A company has reached its break-even point when the contribution margin _____ fixed expenses:

equals

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

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 (9,000x$32)-$120,000

Orange You Going To Smile? sells organes for $20 per crate. If the company's margin of safety $180,000, the margin of safety in units is _______ crates:

$180,000/$20 = 9,000

Chrissy's Cupcakes has $832,000 in sales and $265,000 in fixed expenses. Given a contribution margin ratio of 72%, Chrissy's profit (loss) is:

$334,040 Profit = CM ratio x Sales - Fixed expenses = 72% x 832,000 - 265000

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

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

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

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 $564,000/0.62

Company A has sales of $500,000, variable costs of $350,000, and fixed costs of $150,000. Company A has:

-a contribution margin equal to fixed costs -reached the break even point

At the break-even point:

1. Total revenue equals total cost 2. net operating income is zero

If a company with excess capacity has an opportunity to take an order in addition to its regular sales, the sales price per unit must cover which of the following costs:

1. variable manufacturing cost per unit 2. any cost incurred by accepting the order

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

1. volume 2. costs 3. selling prices

JVL Enterprises has a set 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 $98,000/($50-$15)=2,800

Blissful Blankets' target profit is $520,000. Each blanket has a CM of $21. Fixed costs are $320,000. The number of blankets Blissful Blankets needs to sell in order to achieve its target profit is:

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

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

The contribution margin equals sales minus:

all variable costs

In order to convert the margin of safety from dollar form to percentage form, the margin of safety in dollars must be _____ by the budgeted (or actual) sales in dollars:

divided

The break-even point indicates the sales volume needed to make contribution margin _____ to fixed expenses:

equal

A company's 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 occur, net operating income will:

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

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

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

Items in correct order in which they appear on the contribution margin format income statement:

1. sales 2. variable expenses 3. contribution margin 4. fixed expenses 5. net operating income

Elle's Elephant Shop sells giant stuffed elephants for $55 each. Each elephant has variable cost of $10 and fixed costs are $700. If Ellie sells 35 elephants this month:

1. Profits = $875 35 x ($55-$10)-$700 2. Total Sales = $1,925 35 x $55 3. Total variable costs = $350 (35x$10)

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:

1. The contribution margin per putter is $65 2. The sale of 12,000 putters results in net operating income of $380,000 (12,000 units x $65 contribution margin = $780,000 - $400,000 = $380,000

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:

1. net operating income will increase by $0.70 2. total contribution margin will increase by $0.70

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% Variable expense ratio = $245,050/$845,000 = 29%

If the total contribution margin is less than the total fixed expenses, then a _____ will occur:

net loss

Profit = (selling price per unit x quantity sold)-(variable expense per ______ x quantity sold)- ______ expenses:

unit, fixed

Place the following items in the order in which sales dollars are applied on a contribution margin income statement:

variable costs, fixed expenses, net income

Variable expenses/Sales is the calculation of the ______ ______ ratio:

variable expense

The contribution margin is equal to sales minus:

variable expenses

Which of the following must be subtracted from sales to reach the contribution margin:

variable overhead, variable direct materials, variable direct labor, variable selling and administrative costs

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

volume, selling price, cost

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

zero