Chapter 3

x= fixed costs+ 7,500/ unit contribution margin 6,000/750 = 80

A company currently spends $52,500 per month on fixed costs and produces a product with a contribution margin per unit of $750. The production process involves an engraving machine that can only finish 50 units per month. The company owns one engraving machine. For each additional 50 units, another machine must be rented at a cost of $7,500 per month.The break-even point per month for this product is how many units?

15,000 + [20,000/(1-.2)/ 50 = 800

A company has a unit contribution margin of $50, fixed costs of $15,000 and a target profit of $20,000 after-tax. If the tax rate is 20% the company must sell _____ units in order to earn the target profit.

Unit Contribution Margin = $50 Fixed cost = $15,000 Profit after-tax = $20,000 Tax rate = 20% Profit before tax = $20,000 * 100 / (100 - 20) Profit before tax = $25,000 Minimum number of units required to sell to earned desired profit before tax of $25,000 is = (Fixed cost + Desired profit before tax) / Contribution Margin per unit = ($15,000 + $25,000) / $50 per unit = 800 units

A company has a unit contribution margin of $50, fixed costs of $15,000 and a target profit of $20,000 after-tax. If the tax rate is 20% the company must sell _____ units in order to earn the target profit.

fixed

A company that is capital intensive has a cost structure with a high proportion of _____ costs

$9,600 ÷ (($20 × 70%) + ($60 × 30%)) = 300 units

A telephone company sells two models of phones; standard and deluxe. History shows that 70% of sales are standard phones and 30% are deluxe phones. Given the following information, calculate the break-even units for the company: Standard contribution margin per unit $20 Deluxe contribution margin per unit $60 Total Fixed costs $9,600

$9,600 ÷ (($20 × 70%) + ($60 × 30%)) = 300 units

A telephone company sells two models of phones; standard and deluxe. History shows that 70% of sales are standard phones and 30% are deluxe phones. Given the following information, calculate the break-even units for the company: Standard contribution margin per unit $20 Deluxe contribution margin per unit $60 Total Fixed costs $9,600

$9,600 ÷ (($20 × 70%) + ($60 × 30%)) x 70% = 210 units

A telephone company sells two models of phones; standard and deluxe. History shows that 70% of sales are standard phones and 30% are deluxe phones. Given the following information, calculate the break-even units for the standard phones: Standard contribution margin per unit $20 Deluxe contribution margin per unit $60 Total Fixed costs $9,600

($20 x 80%) + ($60 x 20%) = $28

A telephone company sells two models of phones; standard and deluxe. History shows that 80% of sales are standard phones and 20% are deluxe phones. Given the following information, calculate the weighted average contribution margin per unit: Standard's contribution margin per unit $20 Deluxe's contribution margin per unit $60

cost structure

An organization's _____ ____ is the proportion of fixed and variable costs to total costs

cost structure

An organization's____ _____ is the proportion of fixed and variable costs to total costs

selling price unit variable costs

Assumptions that may be considered important limitations of CVP analysis include constant ______.

Fixed Costs/ Contribution Margin Ratio

Break - Even Volume Sales Dollars

Volume level at which profits equal zero

Break Even Point

Fixed Costs/ Unit Contribution Margin

Break Even Volume in units

Fixed costs/ unit contribution margin

Break even volume (units)

X= Fixed costs / Contribution Margin

Break-even point

Fixed costs/Contribution margin ratio

Break-even volume in sales dollars =

Divide the fixed costs by the weighted-average contribution margin percentage.

Breakeven in sales dollars

assumptions

CVP analysis relies on certain _______ that might limit the applicability of results for decision making.

Unit Revenue - Variable Cost

Contribution Margin

Contribution margin as a percentage of sales revenue = Unit Contribution Margin/ Sales price per unit

Contribution Margin Ratio

assets

Cost-volume-profit analysis includes all of the following except cost assets volume revenues

CVP

Excel's Goal Seek may be used to perform ______ analysis. Multiple choice question.

2,000

Given the following information, calculate profit: Selling price per unit $150.00 Variable cost per unit $120.00 Fixed costs $1,000 Number of units 100

Fixed + [Target profit after tax /(1-tax rate)] / Contribution Margin Ratio = 2000+ (4500/(1-.25))/.40 = 20,000

Given the following information, calculate the sales dollars needed to achieve the target profit. Target profit after tax $4,500 Fixed costs $2,000 Contribution margin ratio 40% Tax rate 25%

the excess of projected or actual sales over the break-even volume expressed as a percentage of the actual volume

Margin of Safety Percentage

Sales volume - break even sales volume(dollars)

Margin of Safety formula

TR = TC at breakeven profit = TR - TC

On a CVP graph, ______.

fixed

On a CVP graph, the intercept of the total cost line is the _______ cost for the period

impacts how profits increase after breakeven is the extent a firm's cost structure is made up of fixed costs can vary within an industry

Operating leverage ______.

Total Revenues- Total Costs

Profit Equation

(Price- variable cost)X number of units - fixed cost

Profit Formula

Version of cost volume profit analysis using a single profit line

Profit Volume Analysis

Fixed Costs + Target Profit/ Contribution Margin per unit

Target Volume(units)

fixed costs + target profit/ contribution margin per unit

Target volume

fixed cost + target profit/ contribution margin ratio

Target volume (sales dollars)

margin of safety

The excess of the projected (or actual) sales over the break-even sales level is called the _____

volume profit analysis

The process where managers understand the relationships between revenues, costs, volume and profit is called cost

unit contribution margin

The slope of the profit-volume line represents ______

Variable costs per unit X units of ouput + Fixed costs

Total Cost

Price X Units of output produced and sold

Total Revenue

False

True or false: At the break-even point, profit = total expenses.

can be computed by multiplying each products proportion by its contribution margin

Weighted average contribution margin

cost and revenue

When compared to the Cost-Volume-Profit graph, the ______ lines are collapsed on the Profit-Volume graph.

Operating leverage

extent to which an organizations cost structure is made up of fixed costs. it is calculated as contribution margin divided by operating profit

Cost Volume Profit Analysis

study of the relations among revenues, costs, and volume and their effect on profit

the ratio of the weighted average contribution margin/ weighted average revenue

weighted average contribution margin percentage