Ch. 5 Managerial Accounting

Chitter-Chatter sells phones and has a set 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

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

A company reports the following for a sales volume of 200 units: $100,000 in sales and $80,000 in variable costs. If the break even point is 200 units and the company sells 201 units, net profit will be:

$100

Adam's Sports Store has a contribution margin ratio of 55% and has already passed the break even point for the year. If Adam's generates additional sales of $250,000 by the end of the year, net operating income for the year will increase by:

$137,500

Company A sold 200,000 units. Selling price is $7 per unit, contribution margin is $4 per unit, and the fixed expenses total $632,000. Company A's profit (loss) is:

$168,000

The variable expense ratio is the ratio of variable expense to:

sales

A product has a selling price of $10 per unit, variable expense of $6 per unit, and total fixed costs are $35,000. If 10,000 units are sold, net operating income will be:

$5,000

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

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

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

Gifts Galore has $189,000 of Sales Revenue from wrapping paper sales last year. Total contribution margin was $100,170 and total fixed expenses were $27,500. The contribution margin ratio was:

53%

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?

7,625 units

Polly's Day Planners sells its planners for $35 each. Sales this year quals $927,500. The margin of safety is $27,300. The margin of safety in units is:

780

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:

8,400

The break even point calculation is affected by:

Selling price per unit, sales mix, and costs per unit

Total contribution margin equals:

fixed expenses plus net operating income

Spice sells paprika for $9.00 per bottle. Each bottle incurs $2.43 in variable cost. Spice incurs annual fixed costs of $825,000. The variable expense ratio for paprika is:

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%

Given sales of $1,452,000, variable expense of $958,320, and fixed expenses of $354,000, the contribution margin ratio is:

34%

Given sales of $1,452,000, variable expenses of $958,320 and fixed expenses of $354,000, the contribution margin ratio is:

34%

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

9,000 crates

When making a decision using incremental analysis consider the:

Change in sales dollars resulting specifically from the decision / change in cost resulting specifically from the decision

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

The degree of operating leverage =

Contribution margin/Net operating income

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

Cost, volume, and selling price

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

Cost/selling price/volume

Which of the following are assumptions of cost-volume-profit analysis?

Costs are linear and can be accurately divided into variable and fixed elements / in multi product companies, the sales mix is constant

Which of the following are assumptions of cost-volume-profit analysis?

Costs are linear and can be accurately divided into variable and fixed elements / in multi product companies, the sales mix is constant.

Which of the following items are found above the contribution margin on a contribution margin format income statement?

Sales / variable expenses

The break even point can be affected by:

Sales mix, total fixed costs, and contribution margin per unit

To simplify CVP calculations, which of the following is assumed to remain constant?

Selling price

To prepare a CVP graph, lines must be drawn representing total revenue,...

total expense, and total fixed expense.

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

$0.35

Sniffles, Inc. produces facial tissues. The company's contribution margin ratio is 77%. Fixed expenses are $240,400. To achieve a target profit of $930,000, Sniffles' sales rounded to the nearest dollar must be:

$1,520,000

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

A company sold 20,000 units of its product at a selling price of $20. The variable cost per unit is $11. Fixed expenses total $150,000. The company's contribution margin is:

$180,000

A company has an opportunity to make a bulk sale that would not impact regular sales or total fixed expenses. The variable cost per unit is $11 and the company desires a total profit of $4,500. The quoted selling price per unit for 500 units should be:

$20

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

Company A has sales of $500,000, variable costs of $350,000 and fixed costs of $150,000. Company A has: (check all that apply) - a contribution margin equal to fixed costs - earned a net operating profit - incurred a net operating loss - reached the break even point

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

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: (check all that apply) - total variable costs = $350 - total costs = $1,250 - total sales = $1,925 -profits = $875

- total variable costs = $350 - total sales = $1,925 -profits = $875

Place the following items in the 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

Sweet Dreams sells pillows for $25 each. Variable costs are $15 per pillow. The company is considering improving the quality of materials which will increase variable costs to $19. The company currently sells 1,200 pillows per month and expects that the improved materials would increase sales to 1,500 per month. The impact of this change on total contribution margin would be an (increase/decrease) of $___________.

Decrease / $3,000

The degree of operating leverage:

Decreases as sales and profits rise / is greatest at sales levels near the break even point / is not a constant

When a company produces and sells multiple products:

Each product most likely creates a unique total of fixed costs, a change in the sales mix will most likely change the break even point, and each product most likely has a unique contribution margin.

Tommy's Trains is currently selling 55,000 toy trains for $50 per unit. The variable cost per train is $26 and total fixed costs are $110,000. If Tommy sells an additional 5,000 trains, profits will:

Increase by $120,000

A company with a high ratio of fixed costs:

Is more likely to experience a loss when sales are down than a company with mostly variable costs / is more likely to experience greater profits when sales are up than a company with mostly variable costs.

At the break even point:

Net operating income is zero / total revenue equals total cost

Candle Central has $1,440 of total variable expense for a sales level of 600 units and $2,160 of total variable expense for a sales level of 900 units. If Candle Central sells 500 units:

The variable cost per unit is $2.40 / total variable cost is $1,200

To calculate profit, multiple the ______________ per unit by sales volume and subtract total fixed cost.

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 is equal to ______________ _______________ divided by ___________________.

contribution margin / sales

Tasty Tangerine is currently selling 50,000 boxes for $25 per box. Variable cost per box is $17 and fixed costs total $260,000. A plan is being considered to increase advertising and reduce the selling price. The advertising would increase fixed costs by $60,000. Management believes the advertising along with a $2 reduction in the selling price per box will increase sales volume by 24,000 boxes. If management's predictions are correct, making these changes will cause net income for the year to:

decrease by $16,000

Company A produces and sells 10,000 units of its product for $10 per unit. Variable costs are $4 per unit and fixed costs total $30,000. A move to a larger facility would increase rent expense by $8,000 and allow the company to meet its demand for an additional 1,000 units. If the move is made, profits will:

decrease by $2,000

The measure of how a percentage change in sales affects profits at any given level of sales is the:

degree of operating leverage

A company has reached its break even point when the contribution margin ___________ fixed expenses.

equals

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

When the analysis of a change in profits only considers the costs and revenues that will change as the result of the decision, the decision is being made using __________________ analysis.

incremental

Profit = (selling price per unit X quantity sold) - (__________________ per __________ X quantity sold) - ( ___________ expenses)

variable / fixed

When a company only produces a single product, the total variable cost can be calculated with the equation:

variable cost per unit multiplied by quantity of units sold

Variable expenses/Sales is the calculation for the _________________ _________________ ratio.

variable expense

The contribution margin is equal to sales minus:

variable expenses

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

zero

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:

zero

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

Sales total $500,000 and fixed costs total $300,000. The contribution margin ratio is 68%. Profit = ?

$40,000

The calculation of contribution margin (CM) ratio is:

contribution margin/sales

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

$380,000

Sales total $500,000 and fixed costs total $300.000. The contribution margin ratio is 68%. Profit = ?

$40,000

Budgeted sales are $982,000, break even sales are $932,000, and fixed expenses are $429,000. The company's budgeted margin of safety in dollars is:

$49,800

Steel, Inc. has a margin of safety in dollars of $559,740. If actual sales were $2,946,000, Steel's margin of safety percentage is ____%.

19%

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

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

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 moth to earn the target profit is:

4,800

Blissful Blankets' target profit is $500,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets that Blissful Blankets needs to sell in order to achieve its target profit is:

40,000

Plush & Cushy sells high end desk chairs. The variable expense per chair is $85.05 and the chairs sell for $189.00 each. The variable expense ratio for the chairs is:

45%

A company is currently selling 10,000 units of product monthly for $40 per unit. The unit contribution margin is $27. The company believes that spending $50,000 per month on advertising will allow them to increase the selling price to $45 and that sales will increase by 750 units per month. Which of the following statements is true?

The company should accept the idea because the profit will increase by $24,000.

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?

The company would rather see more skis sold as it creates the higher profit per unit for the company / Salespersons will be motivated to sell more wakeboards as they will create a higher commission per unit for them.

An increase in sales will increase net operating income by a multiple of that increase in sales. this multiple is known as:

The degree of operating leverage

Which of the following statements is correct? - The risk of loss is not impacted by the margin of safety. - The higher the margin of safety, the lower the risk of incurring a loss. - The higher the margin of safety, the higher the risk of incurring a loss.

The higher the margin of safety, the lower the risk of incurring a loss.

Which of the following is needed to calculate profit?

Unit contribution margin, unit sales, and total fixed costs

Solving for the sales level needed to achieve a profit of zero is the same process for solving as the sales level needed to:

break even

Multiplying unit selling price times the number of units required to break even is one way to calculate:

break even sales dollars

When making a decision using incremental analysis, consider the:

change in cost resulting specifically from the decision / change in sales dollars resulting specifically from the decision

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

Bluin Corp. pays its salesperson a flat salary of $5,750 per month and is considering paying her $30 per unit instead. Current unit sales are 250 per month, but Bluin believes the compensation change will increase sales by 50%. Bluin's current contribution margin is $100 per unit. If Bluin switches the compensation and sales grow as expected, net operating income will:

increase by $7,000 per month

A measure of how sensitive net operating income is to a given percentage change in sales dollars is known as operating

leverage

The equation used to calculate the variable expense ratio using total values is total variable expenses divided by total:

sales

The term used for the relative proportion in which a company's products are sold is:

sales mix

When preparing a CVP graph, the horizontal axis represents:

sales volume

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

total fixed expenses