Chapter 7 DSM
The manager at TV Land Productions reported total sales revenue of $900,000. The variable expenses were $300,000, and there were $325,000 of total fixed expenses. Calculate the contribution margin ratio and use the contribution margin shortcut formula to predict the breakeven point in dollars.
$487,476
Terry's Frame & Art Shoppe produces and sells picture frames to clients at $8.00 per picture frame. The variable cost to produce each picture frame is $3.25. The fixed costs are $3,000 per month. What is the firm's contribution margin per picture frame?
$8.00-$3.25=$4.75
Which of the following refers to the excess of sales revenue over variable expenses?
Contribution Margin
The ________ is computed as the total contribution margin divided by total sales.
Contribution Margin Ratio
How can a manager forecast operating income?
(sales revenue × contribution margin ratio) - fixed costs
Brandy's Balloon Service currently sells 1,000 balloon bundles per month. The competition in the balloon industry continues to soar within a thirty-mile vicinity of the service location. Variable expenses were $2.00 per balloon and fixed expenses were $5,000. If Brandy changes the price of balloon bundles to $10, how many balloon bundles should she sell to achieve her target operating income of $6,000?
1,375 balloon bundles
Daphne's Floral Service has a monthly target operating income of $30,000. Variable expenses are 15% of sales. The manager reported fixed expenses of $20,000. What is Daphne Floral's operating leverage factor at the target level of operating income?
1.67
Lisa's Custom Print Services produces and sells custom seashore prints. The manager reported $5,400 in fixed expenses, operating income of $0 at the breakeven point, and a contribution margin per unit of $50. What is the firm's breakeven point in units using the shortcut approach?
108
Sam's Appliance Outlet has variable expenses of 40% of sales. The manager reported monthly fixed expenses of $270,000. The monthly target operating income is $75,000. What is the monthly margin of safety in dollars if the manager at Sam's Appliance Outlet achieves the operating income goal?
125,000
The Lampost Production Company has $6,000 of fixed expenses. The manager reported that the company's operating income wass $0, and the contribution margin was 40%. What are the company's sales in dollars using the shortcut approach to the contribution margin ratio?
15,000
Daphne's Planter Company produces and sells planters. The manager reported $10,500 in fixed expenses, operating income of $0 at the breakeven point, and a contribution margin per unit of $60. What is the company's breakeven point in units using the shortcut approach?
175
The Heart Foundation is a charity that produces and sells two products, red hearts and purple hearts, to promote health in the community. The manager estimates clients will purchase 2,400 red hearts and 1,100 purple hearts by the end of the next period. The unit contribution margins for red hearts and purple hearts are $2.75 and $3.40. What is the weighted-average unit contribution margin?
2.95
Tara's Sewing Service sells yarn. Tara expects to sell 400 units of yarn this month. The manager forecasted the sale of 200 units of yarn to break even. What is the margin of safety in units?
200 units Expected units - Breakeven units
Violet Industries held an annual meeting and reported a new annual budget of $50,000 in total fixed expenses. The new selling price per unit is $58, and the new variable expense per unit is $30. If the manager can reduce fixed expenses by another $10,000, what is the effect on breakeven sales?
357 decrease in breakeven units 1. Sale $ per unit - Var. $ per sunit = Contribution Margin per unit 2. Fixed cost/Contribution margin per unit = break even 10000/(58-30) = 357
Rachel's Candelabra Shoppe sells candles to clients for $6.00 each. The variable cost to produce each candle is $2.25 per candle. The fixed costs are $2,800 per month. What is the firm's contribution margin ratio?
62.5%
The Coffee Factory sells two products, supreme and mild. The supreme sells for $120 per case (unit) with variable costs of $90 per unit. The mild sells for $90 per unit with variable costs of $10 per unit. The manager reported $42,600 total fixed costs. The Coffee Factory usually sells three supreme brands for each two mild brands. What is the breakeven point in total units?
852 Units
MaryJane's Bakery manufactures and sells a variety of baked goods. The selling price per dozen of chocolate glazed donuts is $8.00. The variable costs to produce the chocolate glazed donuts are $3.75, and total fixed costs are $3,800. How many dozen chocolate glazed donuts must the manager sell to break even?
895 Dozen
How might a change in fixed costs affect the contribution margin?
A change in fixed costs does not affect the contribution margin.
Which of the following statements is NOT true about sensitivity analysis?
A manager will NOT use CVP analysis to conduct sensitivity analysis.
The ________ is the combination of products that make up total sales.
Sales Mix
Which step in the CVP graph indicates the breakeven point?
Step 4
The horizontal x-axis on the CVP graph represents ________.
Volume of units
Which of the following is NOT an approach to compute the breakeven point?
Zero Income Approach
CVP analysis ________.
expresses the relationships amongst costs, volume, and organizational profits
The margin of safety ________.
is the excess of actual or expected sales over breakeven sales
The operating leverage ________.
refers to a company's amount of relative fixed and variable costs