Man. Acc. Ch.2

Given sales of $100,000 a contribution margin of $40,000, and fixed expenses of $50,000, the result is a ______.

$10,000 net operating loss

A company reported $100,000 in sales and $80,000 in variable costs at the breakeven point of 200 units. If the company sells 201 units, net profit will be ______.

$100 Reason: For each unit sold above break-even, profit increases by the contribution margin per unit ( $100,000 - $80,000) ÷ 200 or $100.

Adam's Sports Store has a contribution margin ratio of 55% and has already passed the break-even point for the year. If Adam's generates additional sales of $250,000 by year-end, net operating income will increase by ______

$137,500 Reason: $250,000 × 55% = $137,500 increase

To calculate profit, multiply the ______ per unit by sales volume and subtract total fixed cost.

Contribution Margin

Users can easily judge the impact on profits of changes in selling price, cost or volume when using an income statement constructed under the _____ approach

Contribution Margin

According to the CVP analysis model and assuming all else remains the same, profits would be increased by a(n):

Decrease in the unit variable cost

(T/F) Cost structure refers to the relative portion of product and period costs in an organization.

False, cost structure refers to the relative portion of fixed and variable costs in an organization.

The rise-over-run formula for the slope of a straight line is the basis of ______.

High-low Method

A company's current sales are $300,000 and fixed expenses total $85,000. The contribution margin ratio is 30%. The company has decided to expand production which is expected to increase sales by $70,000 and fixed expenses by $15,000. If these results occur, net operating income will ______.

Increase by $6,000

The break-even point is reached when the contribution margin is equal to:

Total Fixed Costs

The calculation of contribution margin (CM) ratio is ______.

contribution margin ÷ sales

CVP analysis focuses on how profits are affected by ______.

1. Selling Price 2. Unit Variable Cost 3. Mix of Products Sold 4. Sales Volume 5. Total Fixed Costs

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

1. Volume 2. Cost 3. Selling price

A company incurred $12,000 of maintenance cost for 6,500 machine hours in June and $14,250 of maintenance costs for 8,000 hours in August. Assuming these are the high and low months of activity, the estimated fixed maintenance costs using the high-low method is $

$2,250

A company has total sales of $1,430,000. Fixed expenses are $657,000 and the contribution margin ratio is 67%. Company profit (loss) is ______.

$301,100 Reason: (67% × $1,430,000) - $657,000 = $301,100

Chrissy's Cupcakes has $832,000 in sales and $265,000 in fixed expenses. Given a contribution margin ratio of 72%, Chrissy's profit (loss) is ______.

$334,040 Reason: (72% × $832,000) - $265,000 = $334,040

Daisy's Dolls sold 30,000 dolls this year. Each doll sold for $40 and had a variable cost of $19. Fixed expenses were $250,000. Net operating income for the year is ______.

$380,000 Reason: Net operating income = 30,000 × ($40 - $19) - $250,000 = $380,000

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

$7,625 Reason: Break-even point = $305,000 ÷ $40 = 7,625.

JVL Enterprises 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 BREAK-EVEN?

2,800 Units Reason: $98,000 ÷ ($50 - $15) = 2,800

Blissful Blankets' target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets that must be sold to achieve the target profit is _____

40,000 Blankets Reason: ($520,000 + $320,000) ÷ $21 = 40,000

If a company has a variable expense ratio of 35%, its CM ratio must be ____

65%

A company's selling price is $90 per unit, variable cost per unit is $28 and total fixed expenses are $320,000. The number of unit sales needed to earn a target profit of $200,800 is ________

8,400 Reason: ($320,000 + $200,800) ÷ ($90 - $28) = 8,400 units.

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

C. Becomes profit after fixed expenses are covered

Using the contribution margin ratio, the impact on net income for a change in sales dollars is ______.

Change in sales dollars × contribution margin ratio

A company currently has sales of $700,000 and a contribution margin ratio of 45%. As a result of increasing advertising expense by $8,000, the company expects to increase sales to $735,000. If this is done and these results occur, net operating income will:

Increase by $7,750 Reason: (($735,000 - $700,000) × 45%) - $8,000 = $7,750 increase

The higher the margin of safety, the ___ the risk of incurring a loss

Lower

The amount by which sales can drop before losses are incurred is the _________ of ________

Margin of Safety

The contribution margin as a percentage of sales is referred to as the contribution margin or CM _______

Ratio

The variable expense ratio equals variable expenses divided by ______.

Sales

The variable expense ratio is the ratio of variable expense to ______.

Sales

Net Operating Income =

Sales - Variable Expenses = (Contribution Margin) - Fixed Expenses

The term used for the relative proportion in which a company's products are sold is _____

Sales Mix

The relative proportions in which a company's products are sold is referred to as

Sales mix

Which of the following is needed to calculate profit?

Unit contribution margin, unit sales, and total fixed costs

The contribution margin equals sales minus all ______ expenses.

Variable

When using the high-low method, the slope of the line equals the ______ cost per unit of activity.

Variable

A company with a high ratio of fixed costs:

is more likely to experience a loss when sales are down than a company with mostly variable costs is more likely to experience greater profits when sales are up than a company with mostly variable costs.

A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called ______

least-square regression

The best fitting line minimizes the sum of the squared errors when using _______

least-square regression

A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called ____

least-squares regression Reason: The engineering approach is an approach that is based on an analysis of what cost behavior should be.

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

(T/F) If a company with $40,000 of fixed expenses is operating at a loss, each additional unit sold will decrease that loss by the selling price per unit.

False, each additional unit sold will decrease the loss by the contribution margin, not the selling price per unit.

The term "cost structure" refers to the relative proportion of _____ and ____ costs in an organization.

Fixed and Variable