Chapter 3

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

$5000

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

$55

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

$0.35

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 ______.

$2,200

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

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

-Variable expenses -Sales

Company A has sales of $500,000, variable costs of $350,000, and fixed costs of $150,000. Company A has ______.

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

Which tool can be used to easily calculate the change in profit resulting from a change in sales price, sales volume, variable costs, or fixed costs?

CVP analysis

True or false: CVP analysis investigates company personnel policies, business values, and performance measures for a specific company.

False

Contribution margin:

becomes profit after fixed expenses are covered.

CVP is the acronym for

cost-volume-profit

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

nothing

The contribution margin as a percentage of sales is referred to as the contribution margin or CM

ratio

Ceramic Creations sells pots for $25. The variable cost per pot is $12 and 15,000 pots must be sold to break-even. If Ceramic Creations sells 25,000 pots, net operating income will be:

$130,000.

A company sold 20,000 units of its product for $20 each. Variable cost per unit is $11. Fixed expenses total $150,000. The company's contribution margin is ______.

$180,000

A company sold 750 units with a contribution margin of $120 per unit. If the company has a break-even point of 450 units, the net operating income or (loss) is ______.

$36,000

Daisy's Dolls sold 30,000 dolls this year. Each doll sold for $40 and had a variable cost of $19. Fixed expenses were $250,000. Net operating income for the year is ______.

$380,000

A company sells 500 sleds per month for $80. Variable costs are $41 per unit and fixed expenses are $3,500 per month. The company thinks that using a new material would increase sales by 70 units per month. If the new material increases variable costs by $4 per unit, the impact on contribution margin would be a ______.

$450 increase

Net operating income equals:

(unit sales - unit sales to break even) x unit contribution margin

CVP analysis allows companies to easily identify the change in profit due to changes in _____.

-product mix -selling price -volume

Pete's Putters sells each putter for $125. The variable cost is $60 per putter and fixed costs total $400,000. Based on this information ______.

-the sale of 12,000 putters results in net operating income of $380,000 -the contribution margin per putter is $65.

Terry's Trees has reached its break-even point and has a contribution margin ratio of 70%. For each $1 increase in sales _____

-total contribution margin will increase by $0.70 -net operating income will increase by $0.70

At the break-even point _____.

-total revenue equals total cost -net operating income is zero

CVP analysis focuses on how profits are affected by ______.

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

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. CM 4. Fixed 5. NOI

Spice sells paprika for $9.00 per bottle. Variable cost is $2.43 per bottle and Spice's annual fixed costs are $825,000. The variable expense ratio for paprika is ______.

27%

Given a sales price of $100, variable costs of $70 and a break-even point of 500 units, net operating profit for sale of 501 units will be $

30

Seating Galore 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 Seating Galore's chairs is _____ %

45

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

Once the break-even point has been reached, net operating income will increase by the amount of the unit _____ _____ for each additional unit sold.

contribution margin

The calculation of contribution margin (CM) ratio is ______.

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 spend $60,000 on advertising and reduce the selling price by $2 per box. Management believes this plan 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 Blank______.

decrease by $2,000

Once the break-even point is reached, the sale of an additional unit increases contribution margin by an amount that is ______ the increase in net operating income.

equal to

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

equals

True or false: Knowledge of previous sales is necessary when using incremental analysis to evaluate a change in profits.

false

Total contribution margin equals ______.

fixed expenses plus net operating income

A company currently has sales of $700,000 and a contribution margin ratio of 45%. As a result of increasing advertising expense by $8,000, the company expects to increase sales to $735,000. If this is done and these results occur, net operating income will Blank______.

increase by $7,750

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

The variable expense ratio is the ratio of variable expense to ______.

sales

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.

When preparing a CVP graph, the horizontal axis represents:

unit volume

The contribution margin equals sales minus all ______ expenses.

variable

Profit = (selling price per unit x quantity sold) - (_________ expense per unit x quantity sold) - ________ expenses.

variable fixed

Variable expenses ÷ Sales is the calculation for the _____ _____ ratio.

variable expense