Chapter 6
Company A has a contribution margin ratio of 35%. For each dollar in sales, contribution margin will increase by _____
$0.35
A product has a selling price of $10 per unit, variable expenses of $6 per unit and total fixed costs of $35,000. If 10,000 units are sold, net operating income will be $________.
(10-6) x 10,000 - 35,000 = 5000
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 _________
(750-450) x 120 = 36,000
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 $___________.
(9000x32)-120,000 = 168,000
Chitter-Chatter sells phones and has a set target profit of $975,000. The contribution margin ratio is 65% and fixed costs are $195,000. Sales dollars needed to earn the target profit total:
(975000/195000) / 0.65
Profit equals:
(PxQ) - (VxQ) - fixed expenses
Net operating income equals
(unit sales - unit sales to break even) x unit contribution margin
Pete's putters sells putters for $125. The variable cost is $60 per putter and fixed costs total $400,000. Based on this information
-the contribution margin per putter is $65 -The sale of 12,000 putters results in net operating income of $380,000
Citrus Fruits sells oranges for $20 per crate. If the company's margin of safety is $180,000, the margin of safety in units is _________ crates.
9000
Contribution margin is first used to cover ________ expenses. Once the break-even point has been reached, contribution margin becomes ______.
fixed; profit
When the analysis of a change in profits only considers the costs and revenues that will change as the result of the decision, the decision is being made using _________ analysis.
incremental
A measure of how sensitive net operating income is to a given percentage change in sales dollars is known as operating ___________.
leverage
The amount by which sales can drop before losses are incurred is the _______ of _______.
margin of safety
Company A has sales of $500,000, variable costs of $350,000, and fixed costs of $150,000. Company A has ______.
reached the break-even point; a contribution margin equal to fixed costs
The variable expense ratio is the ratio of variable expense to
sales
When preparing a multi-product break-even analysis, the assumption is ordinarily made that the ___________ will not cange.
sales mix
High-low or least squares regression analysis should only be done if a _____ plot depicts linear cost behavior.
scattergraph
To simplify CVP calculations, it is assumed that ________ will remain constant.
selling price
To prepare a CVP graph, lines must be drawn representing total revenue, ________
total expense, and total fixed expense
The break-even point is reached when the contribution margin equals _________.
total fixed expenses
Using the high-low method, the fixed cost is calculated _______________
using either the high or low level of activity and after the variable cost per unit is calculated
In the equation, Y=a+bX, b represents the:
variable cost per unit of activity and slope of the line
Variable expenses divided by sales is the calculation for the ____ ____ ratio.
variable expense
CVP analysis allows companies to easily identify the change in profit due to changes in ______ .
volume, costs, selling price
In a least-squares regression line, the intercept (a) of the line represent the total ___________ cost.
fixed
Given a sales price of $100, variable costs of $70 and a break-even point of 500 units, net operating profit for sale of 501 units will be $_______.
100-70 = $30
Place the following items in the correct order in which they appear on the contribution margin format income statement.
Sales, Variable expenses, Contribution margin, Fixed expenses, Net operating income
Margin of safety in dollars is:
budgeted or actual sales - break-even sales
The calculation of contribution margin (CM) ratio is ______
contribution margin / sales
The degree of operating leverage =
contribution margin divided by net operating income
CVP is an acronym for
cost volume profit
The contribution margin income statement allows users to easily judge the impact of a change in _________ on profit
cost, volume, selling price
The break-even point calculation is affected by ________.
costs per unit; sales mix; selling price per unit
Once the break-even point has been reached, the sale of an additional unit will lead to an increase in contribution margin that is ____ the increase in net operating income.
equal to