Chapter 3 SmartBook

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

$9,600 / (($20 x 70%) + ($60 x 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 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 company is currently producing less than 1,000 units of product (monitors) per month. They must add an additional supervisor and other fixed costs at a total of $30,000 per month if more than 1,000 monitors are produced per month. Calculate the break-even in units given the following information and assuming that the company plans to produce more than 1,000 monitors. Selling price per unit $400 Variable cost per unit $275 Fixed cost for 1,000 units $100,000

($100,000 + $30,000) / ($400 - $275) = 1,040 units

Select all that apply: Select the choices that correctly express the profit equation.

total costs = total revenues - operating profit & operating profit = total revenues - total costs

The slope of the profit-volume line represents ______.

unit contribution margin

Select all that apply: Assumptions that may be considered important limitations of CVP analysis include constant ______.

unit variable costs & selling price

The break-even point is the ______.

volume level at which profits equal zero

Given the following information, calculate profit: Selling price per unit $150 Variable cost per unit $120 Fixed costs $1,000 Number of units 100

(120 - 150)x100 - 1,000 = $2,000

Select all that apply: Which of the following are true of CVP analysis?

CVP analysis is a tool that can help managers with decisions & CVP analysis relies on certain assumptions that might limit the applicability of the CVP results

When compared to the cost-volume-profit graph, the ______ lines are collapsed on the profit-volume graph.

cost and revenue

The proportion of fixed and variable costs to total costs of an organization is the ______.

cost structure

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

cost-volume-profit

Break-even volume in sales dollars =

fixed costs / contribution margin ratio

The extent to which an organization's cost structure is made up of fixed costs is the ______.

operating leverage

A toy company sells two models of model cars: standard and deluxe. History shows that 80% of sales are standard cars and 20% are deluxe cars. Given the following information, calculate break-even sales. Standard sales price per unit $25 Deluxe sales price per unit $50 Weighted-average contribution margin per unit $15 Fixed costs $56,000

$25 x 80% = 20 $50 x 20% = 10 $56,000 / ($15 / $30) = $112,000

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

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

Given the following information, calculate the margin of safety percentage: Actual sales $100,000 Contribution margin ratio 0.60 Fixed costs $30,000

(100,000 - (30,000 / 0.6)) / 100,000 = 50%

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.

(15,000 + (20,000 / ( 1 - 0.2))) / 50 = (15,000 + 25,000) / 50 = 800 units

Target volume (units) =

(fixed costs + target profit) / contribution margin per unit

Target volume (sales dollars)

(fixed costs + target profit) / contribution margin ratio

Given the following information, calculate target volume (in sales dollars): Sales price per unit $30 Variable cost per unit $18 Target profit $8,000 Fixed costs $2,000

(fixed costs + target profit) / contribution margin ratio 2,000 + 8,000 / 0.4 = $25,000

Given the following information, calculate the break-even volume (in units): Selling price per unit $14 Variable cost per unit $10 Fixed costs $1,000

1,000 / (14 - 10) = 250 units

A toy company sells two models of model cars; standard and deluxe. History shows that 80% of sales are standard cars and 20% are deluxe cars. Given the following information, calculate the break-even sales dollars: Weighted average revenue $20 Fixed costs $5,000 Weighted average contribution margin per unit $8

5,000 / ($8 / 20%) = $12,500

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. Calculate the break-even point in units per month for this product.

Break-even without additional cost = $52,500 ÷ $750 = 70 units Profit = ($750 × 70) - ($52,500 + $7,500) = ($7,500) ($52,500 + $7,500) ÷ $750 = 80

A telephone company sells two models of phones; standard and deluxe. For every 500 standard phones sold, the company sells 200 deluxe phones. Calculate the break-even point in packages using the fixed product mix method. Standard contribution per unit $20 Deluxe contribution margin per unit $60 Total fixed costs $55,000

Contribution margin = (500 × $20) + (200 × $60) = 22,000. $55,000 ÷ 22,000 = 2.5 packages

Cost behavior distinguishes whether costs are ______.

fixed or variable

When doing multi-product break-even analysis, a company defines a package or bundle of products in the typical product mix and then computes break-even when using the ______ method.

fixed product mix

CVP analysis can be performed using ______, a Microsoft excel analysis tool.

goal seek

Companies A and B have the same total revenues and operating profits. Company A has a contribution margin ratio of 30% and Company B has a contribution margin ratio of 40%. Which of the following statements is true?

if sales increase by 10%, company B will have a higher increase in profits than company A

Which of the following is true of cost structures?

in general, companies with lower fixed costs are better able to survive tough times than companies with higher fixed costs

Select all that apply: Operating leverage ______.

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

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

margin of safety percentage

The profit equation is ______.

operating profit = total revenues - total costs

Select all that apply: On a CVP graph, ______.

profit = TR - TC TR = TC at breakeven

The cost structure is the ______

proportion of fixed and variable costs to total costs of an organization

Margin of safety = ______

sales volume - break-even sales volume

Given the following information, calculate the margin of safety: Sales $100,000 Fixed costs $30,000 Variable costs $60,000

sales volume - break-even sales volume 100,000 - (30,000 / 0.4) = $25,000

A spreadsheet program such as Microsoft ______ is ideally suited for CVP analysis.

excel

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

fixed costs

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%

2,000 + 4,500 / (1 - 0.25) = 8,000 / 0.4 = $20,000

To use Goal Seek in Excel, choose the "______" tab and select "______" from the ribbon.

Data; What-If Analysis

Select all that apply: Which of the following expressions demonstrates the profit equation?

TR - TC (P - V)X - F

Cost-Volume-Profit analysis includes all of the following except ______.

assets

Cost ______ distinguishes whether costs are fixed or variable.

behavior

If Excel's Goal Seek is run with the target profit set to zero, the ______ will be calculated.

break-even in units

The volume level at which profits equal zero is the ______.

break-even point

Given the following information, calculate the break-even volume in sales dollars: selling price per unit $20 Variable cost per unit $12 Fixed costs $1,000

contribution margin = 8/20 fixed costs = 1,000 breakeven = 1,000 / 0.4 = $2,500

Given the following information, calculate the target volume (in units): Sales price per unit $25 Variable cost per unit $15 Target profit $5,000 Fixed costs $1,000

fixed costs + target profit / contribution margin per unit 1,000 + 5,000 / 25 - 15 6,000 / 10 = 600 units

Break-even volume in units =

fixed costs / unit contribution margin