Chapter 5 Smartbook

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

21,645 (($470,000 + $222,640)/$32)

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

zero

A company needs to sell 90,000 units to reach the target profit of $180,000. If each unit sells for $7.50, the total sales dollars needed to reach the target profit is $

$675,000 (90,000 x $7.50)

Company A has fixed costs of $564,000 and a CM of 62%. Sales dollars to break-even rounded to the nearest whole dollar =

$909,677 ($564,000/0.62)

When preparing a CVP graph, the horizontal axis represents: a. sales volume b. total costs c. variable costs d. sales dollars

a. sales volume

Sniffles, Inc. produces facial tissues. The company's contribution margin ratio is 77%. Fixed expenses are $240,400. To achieve a target profit of $930,000, Sniffles' sales rounded to the nearest dollar must be:

$1,520,000 (Sales = ($240,00 + $930,000)/0.77)

Lance, Inc. has sales of 9,000 units. The contribution margin per unit is $32 and fixed costs total $120,000. Lance's profit is $______.

$168,000 ((9000 x $32) - $120,000)

A company sold 20,000 units of its product at a selling price of $20. The variable cost per unit is $11. Fixed expenses total $150,000. The company's contribution margin is:

$180,000 (contribution margin = 20,000 x ($20 - $11))

Daisy's Dolls sold 30,000 dolls this year for $40 each. Each doll's variable cost was $19. If Daisy incurred $250,000 of fixed expenses, net operating income for the year is:

$380,000 (Net operating income = 30,000 x ($40 - $19) - $250,000)

Polly's Day Planners sells its planners for $35 each. Sales this year equals $927,500. The margin of safety is $27,300. The margin of safety in units is:

$780 ($27,300/$35)

A company has a target profit of $204,00. The company's fixed costs are $305,000. The CM per unit is $40. What is the BREAK-EVEN point in unit sales?

7,625 (break-even point = $205,000/$40)

When making a decision using incremental analysis consider the:

Change in cost resulting specifically from the decision.Change in sales dollars resulting specifically from the decision.

CVP is the acronym for __-__-__

Cost Volume Profit

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: a. $36,000 b. ($64,000) c. $54,000 d. ($10,000)

a. $36,000 (Net operating income = (750 - 450) x $120)

When a company sells one unit about the number required to break-even, the company's net operating income will: a. change from zero to a net operating profit b. decrease by the contribution margin per unit c. increase by the sales price of the extra until sold d. increase or decrease depending on total fixed costs

a. change from zero to a net operating profit

Which of the following are assumptions of cost-volume-profit analysis? a. costs are linear and caab be accurately divided into variable and fixed elements b. fixed costs per unit stay the same within the relevant range c. in multi product companies, the sales mix is constant d. variable costs per unit increase over the relevant range of activity

a. costs are linear and caab be accurately divided into variable and fixed elements c. in multi product companies, the sales mix is constant

Which of the following statements is correct? a. higher the margin of safety, lower the risk of incurring a loss b. higher the margin of safety, the higher the risk of incurring a loss c. the risk of loss is not impacted by the margin of safety

a. higher the margin of safety, lower the risk of incurring a loss

Adam's Sports Store has a contribution margin ratio of 55%. The break-even point has already been reached this year. If the shop is able to generate additional sales of $250,000 by the end of the year, how much will its net operating income change as a result of the additional sales? a: $112,500 b. $137,500 c. $250,000

b. $137,500 (net operating income change = $250,000 x 55%)

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: a. $20.63 b. $55 c. $880,000 d. $10,000

b. $55 (unit contribution margin = $90 - $35)

To calculate the degree of operating leverage, divide ____ _____ by net operating income.

contribution margin

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

costs, volume, selling price

Contribution Margin: a. Is first used to cover variable expenses b. Equals sales minus fixed expenses c. Is not affected by changes in activity d. Becomes profit after fixed expenses are covered

d. Becomes profit after fixed expenses are covered

The calculation of contribution margin (CM) ratio is: a. net operating income/total contribution margin b. contribution margin/total expenses c. variable expenses/contribution margin d. contribution margin/sales

d. contribution margin/sales

Total contribution margin =

fixed expenses plus net operating income

Profit = (selling price x quantity sold) - (____ expense per unit x quantity sold) -_____ expenses

variable, fixed

Blissful Blankets' target profit is $520,000. Each blanket has a cM of $21. Fixed costs are $320,00. The # of blankets Blissful Blankets need to sell in order to achieve its target profit is:

40,000 (($520 + $320)/$21)

Plush & Cushy 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 Plush & Cushy's chairs is:

45% (variable expense = $85.05/$189)

which of the following represented the equation that should be used in setting a target selling price for a special order bulk sale that does not affect a company's normal sales? a. selling price per unit = VC per unit + FC per unit b. selling price per unit = CM per unit + FC per unit c. selling price per unit = VC per unit + desired profit per unit

c. selling price per unit = VC per unit + desired profit per unit (A special order bulk sale will not increase FC and therefore they should not be considered in setting a price. VC are what will be incurred to complete the order)

The equation used to calculate the variable expense ratio using total values is total variable expenses divided by total:

sales

The contribution margin income statement allows users to easily judge the impact of a change in ____ on profit a. organizational structure b. volume c. selling price d. cost

selling price, cost, volume

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 (Net Operating Income = $184,000 - $85,000)

Candle central has $1,440 of total variable expense for a sales level of 600 units and $2,160 of total variable expense for a sales level of 900 units. If candle central sells 500 units, which of the following statements would be true?

-The variable cost per unit is $2.40 ($1,440/600) - Total variable cost is $1,200 ($1,440/600= $2.40 per unit x 500 units)

To convert the formula for sales dollars required to attain a target profit sales dollars required to break-even, set the target profit to $____

0

Steel, Inc. has a margin of safety in dollars of $559,740. If actual sales were $2,946,000, Steel's margin of safety percentage is:

19% ($559,740/$2,946,000)

Terry's Trees has reached its break-even point and has calculated its contribution margin ratio to be 70%. For each $1 increase in sales... Total contribution will: Net operating income will:

both will increase by $0.70

The break-even point is reached when the contribution margin is equal to: a. profit b. total sales c. total variable expenses d. total fixed expenses

d. total fixed expenses

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

equals