ACCT 2020 - Chapter 2 Learnsmart

True or false: Cost structure refers to the relative portion of product and period costs in an organization.

false: Cost structure refers to the relative portion of fixed and variable costs in an organization.

The calculation of contribution margin (CM) ratio is:

contribution margin/sales

Contribution margin ratio is equal to Blank ______ Blank _____ divided by ____.

contribution margin; sales

The term "cost structure" refers to the relative proportion of _____ and _____ costs in an organization.

variable; fixed

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

$520,000 = $21 x Q - $320,000; $520,000 + 320,000 = $21xQ; $840,000/$21 = 40,000 blankets

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

-Profit = $875 profit= 35 x (55 - 10) - 700 -Total variable costs = $350 (35 x 10)= 350 -Total sales = $1,925 ( 35 x 55 )

A company's selling price is $90 per unit, variable cost per unit is $28 and total fixed expenses are $320,000. The number of unit sales needed to earn a target profit of $200,800 is:

8400 units ($200,800 + $320,000)/(($90 - $28)/90) = $756,000 $756,000/$90 = 8400 units

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

FALSE: Margin of safety is the excess of the budgeted (or actual) sales dollars over break-even sales dollars

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

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:

Sales Volume= (4000+3200) / (15.00-13.50) = 4,800 bottles

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 = 305,000/40 = 7625

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

degree operating leverage = contribution margin/net income

When constructing a CVP graph, the vertical axis represents:

dollars (includes sales, variable costs and fixed costs)

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

margin of safety

Marjorie's Mugs sold 300 mugs last year for $20 each. Variable costs were $7 per mug and total fixed costs were $1,700. Marjorie's Mugs' profit was:

profit = $2,200 = (300*(20-7) - 1,700)

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

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

zero

Water World sells wake boards and water skis and pays sales commissions based on product sales price. The wake boards sell for a higher price than the skis and the skis have a higher contribution margin per unit than the wake boards. Which of the following are true?

- Salespersons will be motivated to sell more wake boards as they will create a higher commissionper unit for them. -The company would rather see more skis sold as it creates the higher profit per unit for thecompany.

If the total contribution margin is less than the total fixed expenses, then a ______ will occur.

net loss

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

volume, cost, selling price

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 Contribution margin of $40,000 - fixed expenses of $50,000 = a $10,000 loss.

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 98,000/(50 - 15) = 2,800

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

The contribution margin equals sales minus:

all variable costs

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

contribution margin

Contribution margin is first used to cover ______ expenses. Once the break-even point has been reached, contribution margin becomes ______.

fixed; profit

Profit = (selling price per unit x quantity sold) - ( _____ expense per unit x quantity sold) - ______ expenses.

variable; fixed