ACCT 201 Chapter 6 Cost Volume Profit Relationships

Company A has a contribution margin ratio of 35%. For each dollar in sales, contribution margin will increase by ______.

$0.35

Profit=

(selling price per unit x quantity sold) - (variable expense per unit x quantity sold) - fixed expenses

degree of operating leverage

Contribution Margin / Net Operating Income

Contribution margin ratio:

Contribution Margin / Sales

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

When making a decision using incremental analysis consider the _________.

change in sales dollars and cost resulting specifically from the decision

The amount by which sales can drop before losses are incurred is the _________________.

margin of safety

Contribution Margin=

sales- variable expenses

Contribution margin:

= sales-variable expenses becomes profit after fixed expenses are covered

selling price per unit:

variable cost per unit/ desired profit per unit -should be used in setting a target selling price for a special order bulk sale that does not affect a company normal sales

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

zero

When preparing a CVP graph, the horizontal axis represents

sales volume

contribution margin format income statement order:

sales, variable expenses, contribution margin, fixed expenses. net operating income

The break even point is reached when the contribution margin is equal to _______.

total fixed expenses

variable expense ratio:

variable expense/ sales