Chapter 3

The selling price per unit minus the variable cost per unit is the_______

contribution margin per unit

The contribution margin ratio is_________

contribution margin ratio = contribution margin percentage x revenues (in dollars)

As per CVP, operating income calculations use_____

contribution margins and fixed costs

The contribution margin income statement can be used to predict____ _____ at different levels of activity

future profits

one of the first steps to think about when using CVP to make decisions

identifying the variable and fixed costs

When fixed costs are $50,000 and variable costs are 60% of the selling price, then break-even sales are ________

$125,000 $50,000 fixed costs / (1-.6) = $125,000 in Breakeven sales

Fixed costs equal $15,000, unit contribution margin equals $25, and the number of units sold equal 1,150. Operating income is______

$13,750 (1,150 x $25 ) - $15,000

Alex furniture sells a table for $850. His fixed costs are $25,000, while his variable costs are $500 per table. He currently plans to sell 175 tables this month. What is the budgeted revenue for the month assuming that Alex sells 175 tables?

$148,750 Budgeted revenue = 175 tables x $850 selling price

Sales of $400,000 when variable costs total $300,000 and fixed costs total $50,000. The break-even point in sales dollars is ______

$200,000 Contribution margin percentage = (400,000 - 300,000) / 400,000 = 25% 50,000 Fixed costs / .25 CMP

At the break-even point of 2,000 units, variable costs total $4,000 and fixed costs total $6,000. The 2,001st unit sold will contribute ____ to profits?

$3 $6,000 fixed costs / 2,000 units = contribution margin of $3 per unit

Tally corp sells softwares during recruiting seasons. During the current year, 11,000 softwares were sold resulting in $440,000 of sales revenue, $110,000 of variable costs, and $48,000 of fixed costs. Calculate the contribution margin per software

$30 (440,000-110,000)/11,000

T or F: In CVP analysis, the graph of total revenues versus total costs is linear in nature relation to units sold within a relevant range and time period.

True

T or F: In CVP analysis, the number of output units is the only revenue driver.

True

T or F: Operating income + total fixed costs = contribution margin

True

T or F: The classification of costs as variable and fixed depends on the relevant range, the length of the time horizon, and the specific decision situation.

True

T or F: While doing cost-volume-profit analysis, a company should separate costs into fixed and variable components?

True

The difference between total revenues and total variable costs is called contribution margin

True

T or F: A revenue driver is a variable, such as volume, that casually affects revenues.

True

T or F: Contribution margin = contribution margin percentage x revenue (in dollars)

True

Alex furniture sells a table for $850. His fixed costs are $25,000, while his variable costs are $500 per table. He currently plans to sell 175 tables this month. What is the budgeted operating income for the month assuming that Alex sells 175 tables?

$36,250 Budgeted operating income = 148,750 [(175 x 500) + $25,000]= $148,750 - 112,500 = $36,250

Pacific company sells only one product for $11 per unit, variable costs are $3 per unit, and selling and administrative costs are $1.50 per unit. Fixed costs are 10,000 units are 5,000. The operating income is______

$6 per unit Operating income = 11-3-1.50 - (5,000/10,000)

Tally corp sells softwares during recruiting seasons. During the current year, 11,000 softwares were sold resulting in $440,000 of sales revenue, $110,000 of variable costs, and $48,000 of fixed costs. If sales increase by $60,000, operating income will increase by______

$60,000 Price: $440,000/11,000 = $40 Sales in softwares: $60,000/30 = 2,000 softwares Operating income increase: 2,000 * $30 = $60,000

Shine jewelry sells 400 units resulting in $7,000 of sales revenue, $3,000 of variable costs, and $1,500 of fixed costs. What is the variable cost per unit?

$7.50 (3,000/400)

Sky high sells helicopters. During the current year, 100 helicopters were sold resulting in $820,000 of sales revenue, $250,000 of variable costs, and $342,000 of fixed costs. The number of helicopters that must be sold to achieve $300,000 of operating income is ______

113 helicopters ($342,000 fixed costs + $300,000 operating income) / $5,700 CMPU = 113

Star jewelry sells 500 units resulting in $75,000 of sales revenue, $28,000 of variable costs, and $18,000 of fixed costs. The break-even point in units is______

192 units Contribution margin per unit = ($75,000 -$28,000) / 500 = $94 per unit. $18,000 fixed costs/ $94 per unit = 191.49 = 192

Sky high sells helicopters. During the current year, 100 helicopters were sold resulting in $820,000 of sales revenue, $250,000 of variable costs, and $342,000 of fixed costs. The break-even point in units is ________

60 units CMPU = ($820,000 - $250,000) = $570,000 $570,000 / 100 units =5,700 per unit $342,000 fixed costs / $5,700 per unit = 60 units

Star jewelry sells 500 units resulting in $75,000 of sales revenue, $28,000 of variable costs, and $18,000 of fixed costs. The number of units that must be sold to achieve $40,00 of operating income is _____

617 units ($75,000 - $28,000) / 500= $94 per unit (18,000 fixed costs + 40,000 operating income) /94 per unit = 617 units.

Winnz sells 8,000 units resulting in $100,000 of sales revenues, $35,000 of variable costs, and $45,000 of fixed costs. The contribution margin percentage is_______

65% ($100,000 - $35,000) / $100,000 = 65% Sales revenues - variable costs / sales revenues

Any factor that affects revenue is a _______

A revenue driver

"Only selling price, variable cost per unit, and total fixed costs are known and constant" is a true assumption of ______

CVP analysis

The following statement is an assumption from what? "total costs can be divided into a fixed component and a component that is variable with respect to the level of output".

CVP analysis

Shine jewelry sells 400 units resulting in $7,000 of sales revenue, $3,000 of variable costs, and $1,500 of fixed costs. What is the contribution margin per unit?

Contribution margin per unit=$10 (7,000 -3000) / 400 units

T or F: Sales margin = Contribution margin percentage x revenues (in dollars)

False

T or F: It is assumed in CVP analysis that the unit selling price, unit variable costs, and unit fixed costs are known and constant.

False Assumed that unit selling price, unit variable costs, and total fixed costs are known and constant

T or F: The difference between total revenues and total variable costs is called profit margin.

False The difference between total revenues and total variable costs is called contribution margin

T or F: The shorter the time horizon, the lower the percentage of total costs considered fixed.

False The shorter the time horizon, the higher the percentage of total costs considered fixed.

Break-even point in units is _____

Fixed costs / by contribution margin per unit

The break-even point revenues is calculated by dividing ______

Fixed costs / contribution margin percentage

At break-even point, ________

Operating income is equal to zero

The break-even point is the activity level where_____

Revenues equal the sum of variable and fixed costs

Is the following statement true? "The theory assumes that units manufactured equal units sold"?

The theory assumes that units manufactured equal units sold. -True

Breakeven point decreases if _______

The total fixed costs decrease

If break-even point is 1,000 units, each unit sells for $30, and fixed costs are $10,000, then on a graph the __________

Total revenue line and the total cost line will intersect at $30,000 of revenue

Is the following statement true about CVP? "Total revenues and total costs are linear in relation to output units"

Total revenues and total costs are linear in relation to output units - True

Contribution margin equals_____

revenues minus variable costs

If the break-even point is 1,000 units and each unit sells for $50, then______

selling $50,000 units will result in zero profit 1,000 units x $50 per unit

Why managers use cost-volume-profit

to study the behavior of and relationship among the elements such as total revenues, total costs, and income

The contribution income statement highlights________

variable and fixed costs