ch 5-Cost volume profit relationships

after reaching the break-even point, a company's net operating income will increase by the ________ ________ per unit each additional unit sold.

contribution margin

Unit contribution margin formula

selling price per unit- variable expense per unit

To calculate the operating leverage

Divide contribution margin/net operating income

to convert the margin of safety in dollars to the margin of safety in terms of number of units sold, divide the margin of safety in dollars by the

sale price per unit

Daisy's Dolls sold 30,000 dolls this year for $40 each. Each doll's variable cost was $19. If Daisy incurred $250,000 of fixed expenses, net operating income for the year is...

$380,000[net operating income= 30,000 x (40-19) - 25,000]

Company A's product sells for $90 per unit and has a variable cost of $35 per unit. If Company A sells 16,000 units and incurs total fixed costs of $550,000, the unit contribution margin is:

$55; Unit contribution margin = $90 - $35 = $55

CVP analysis focuses on how profits are affected by:

-selling prices -sales volume -unit variable costs -total fixed costs -mix of products sold

Paula's Perfumes has target profit of $4000/month. Sells for $15/bottle, VC=$13.50/bottle, FC=$3200/month. The number of bottles sold per month to earn target profit is:

4800 Sales volume = ($4,000+3,200) /(15.00-13.50) =4,800 bottles

Company A has fixed costs of $564,000 and wishes to earn a profit of $800,000 this year. if company A has a contribution margin ratio of 62%, what amount of sales dollars must be sold to reach the target profit?

564,000+800,000/0.62= 2, 200, 000

The break-even point is

is the level of sales at which the profit is zero.

When preparing a . CVP graph, the horizontal axis represents:

Sales Volume

a company has reached its break-even point when the contribution margin __ fixed expenses.

equals

at the break-even point:

total revenue equals total cost Net operating income is zero.

variable expenses/Sales is the calculation for the

variable expense ratio

The contribution margin is equal to sales minus

variable expenses