CH7 accounting

The formula used to find the number of units that need to be sold in order to breakeven or generate a target profit is:

(fixed expenses + operating income) ÷ contribution margin per unit

The formula used to find the number of units that need to be sold in order to breakeven or generate a target profit is:

(fixed expenses + operating income) ÷ contribution margin per unit.

The Sweet Factory produces and sells specialty fudge. The selling price per pound is $20, variable costs are $12 per pound, and total fixed costs are $6,000. How many pounds of fudge must The Sweet Factory sell to breakeven?

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Which of the following statements is TRUE if the variable cost per unit decreases while the sales price per unit and total fixed costs remain constant?

The contribution margin increases and the breakeven point decreases

Which of the following statements is TRUE if the sales price per unit increases while the variable cost per unit and total fixed costs remain constant?

The contribution margin increases and the breakeven point decreases.

On a CVP graph, the line that begins at the origin represents:

total sales revenues.

CVP analysis assumes all of the following EXCEPT that:

inventory levels will increase.

Sales below the breakeven point indicate a ________, whereas sales above the breakeven point indicate a ________.

loss; profit

The contribution margin ratio is computed by:

dividing contribution margin per unit by the sales price per unit.

The area to the right of the break-even point and between the total revenue line and total expense line represents:

expected profits.

The contribution margin ratio explains the percentage of each sales dollar that contributes towards:

fixed costs and generating a profit.

On a CVP graph, the intersection of the sales revenue line and the variable expense line is known as:

none of the above

After break-even on a CVP graph, the difference between sales dollars and total costs is the representation of:

operating income.

To find the breakeven point using the shortcut formulas, you use zero for the:

operating income.

Managers can quickly forecast the operating income by multiplying ________ and then subtracting fixed costs.

projected sales revenue by the contribution margin ratio

On a CVP graph, the horizontal line intersecting the vertical y-axis at the level of total cost represents:

total fixed costs.

Which of the following will decrease the breakeven point in units assuming no other changes in the cost-volume-profit relationship?

An increase in the sale price per unit

Which of the following statements is TRUE if both fixed expenses and the sale price per unit increase while variable costs per unit are unchanged?

Breakeven point in units could increase, decrease, or remain the same.

The breakeven point may be defined as the number of units a company must sell to do which of the following?

Generate a zero profit

If the sale price per unit decreases and variable costs remain the same, what will be the effect on the contribution margin ratio?

It will decrease.

Which of the following is TRUE when using the income statement approach to finding breakeven?

Sales revenue - variable expenses - fixed expenses = operating income

On a contribution margin income statement, to what is contribution margin equal?

Sales revenues minus variable expenses

Which of the following is NOT an approach used to calculate the breakeven point?

The balance sheet approach

On a CVP graph, the total cost line intersects the total revenue line at which of the following points?

The breakeven point

Which of the following statements is TRUE if the fixed costs increase while the sales price per unit and variable costs per unit remain constant?

The contribution margin stays the same and the breakeven point increases.

Which of the following represents the excess of the selling price per unit of a product over the variable cost of obtaining and selling each unit?

Unit contribution margin

Which of the following is an underlying assumption of the cost-volume-profit graph?

Volume is the only cost driver.

To compute the unit contribution margin, ________ should be subtracted from the sales price per unit.

all variable costs

Contribution margin ratio is computed by dividing:

contribution margin by sales revenue.

The formula used to find the sales revenue (sales in dollars) needed in order to breakeven or generate a target profit is:

(fixed expenses + operating income) ÷ contribution margin ratio.

Which of the following statements is TRUE if total fixed costs decrease while the sale price per unit and variable costs per unit remain constant?

Breakeven point in units decreases.

Which of the following statements is TRUE if the variable cost per unit increases while the sale price per unit and total fixed costs remain constant?

Breakeven point in units increases.

Managers can quickly forecast the total contribution margin by multiplying the projected:

sales revenue by the contribution margin ratio.

The unit contribution margin is computed by:

subtracting the variable cost per unit from the sales price per unit.