Chapter 5: Cost-Volume-Profit Relationships

Selling price per unit multiplied by the quantity sold equals total _________

sales

The variable expense ratio is the ratio of variable expense to

sales

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

reached the breakeven point; a contribution margin equal to fixed costs 500,000-350,000=150,000-150,000=0

Lance Inc has sales of 9000 units. The contribution margin per unit is $32 and fixed costs total $120,000. Lance's profit is $______.

$168,000 (9,000 units * $32 = 288,000 - 120,000 = 168,000)

Run Like the Wind sells ceiling fans. Target profit for the year is $470,000. If each fan's contribution margin is $32 and fixed costs total $222,640, the number of fans required to meet the company's goal is:

470,000+222,640=692,640/32= 21,645

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

CVP analysis

Marjorie's Mugs sold 300 mugs last year for $20 each. Variable costs were $7 per mug and total fixed costs were $1700. Marjorie Mugs' profit was:

Profit = 300*(20-7)-1700=$2200

Variable expense ratio:

Total variable expenses / Total sales dollars

The equation method to compute units sales to achieve a target profit is: Profit =

Unit CM x Unit sales - Fixed expenses

A company has target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. What is the BREAK-EVEN point in unit sales?

break even point is when the contribution margin equals the fixed costs 305000/40 = 7625 units

JVL Enerprises has set a target profit of $126,000. The company sells a single product for $50 per unit. Variable costs are $15 per unit and fixed costs total $98,000. How many units does JVL have to sell to BREAKEVEN?

breakeven is to have the contribution margin equals fixed costs 98,000/(50-15)=2800

To calculate the degree of operating leverage divide...

contribution margin over net operating income

Contribution margin divided by sales is the formula for

contribution margin ratio (CMR)

The break even point calculation is affected by:

costs per unit, selling price per unit, and sales mix

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

costs, selling price, volume

In order to convert the margin of safety from dollar form to percentage form, the margin of safety in dollars must be ___________ by the budgeted (or actual) sales in dollars.

divided

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;((125-60)=65*12000=780,000-400,000=380,000) the contribution margin per putter is $65 (125-60)

Candle Central has $1440 of total variable expense for a sales level of 600 units and $2160 of total variable expense for a sales level of 900 units. If Candle Central sells 500 units:

the variable cost per unit is $2.40; total variable cost is $1200

CVP analysis focuses on how profits are affected by:

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

For a single product company, the margin of safety in ________ form is calculated by dividing the margin of safety in dollars by the selling price per unit.

unit

Cakes by Jacki has $144,000 of fixed costs per year. The contribution margin ratio is 59%. The sales dollars to breakeven rounded to the nearest dollar equals:

unit sales to break even = fixed expenses / unit cm 144,000/.59 =$ 244,068

Which of the following must be subtracted from sales to reach the contribution margin?

variable direct materials variable overhead variable selling and administrative costs variable direct labor

If a company with excess capacity has an opportunity to take an order in addition to its regular sales, the sales price per unit must cover which of the following costs?

variable manufacturing cost per unit; any cost incurred by accepting the order

The contribution margin income statement allows users to easily judge the impact of a change in _________ on profit.

volume, costs, and selling price

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

zero