managerial acct. chapter 5

Cost structure refers to the relative portion of product and period costs in an organization. True false question.

False

The margin of safety is the excess of break-even sales dollars over budgeted (or actual) sales dollars. True false question.

False

The degree of operating leverage = Blank______

contribution margin ÷ net operating income

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

contribution margin ÷ sales

When constructing a CVP graph, the vertical axis represents:

dollars

True or false: Without knowing the future, it is best to have a cost structure with high variable costs.

False

To prepare a CVP graph, lines must be drawn representing total revenue, Blank______.

total expense, and total fixed expense

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 Blank______.

$380,000

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?

$98,000 ÷ ($50 - $15) = 2,800

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 Blank______. Multiple choice question.

8,400

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 ______.

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

Marjorie's Mugs sold 300 mugs last year for $20 each. Variable costs were $7 per mug and total fixed costs were $1,700. Marjorie's Mugs' profit was ______.

Profit = 300 × ($20 - $7) - $1,700 = $2,200.

Which of the following statements is correct?

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

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.

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

margin, safety

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

product mix selling price volume

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

ratio

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

sales mix

The break-even point calculation is affected by ______.

sales mix costs per unit selling price per unit

Elle's Elephant Shop sells giant stuffed elephants for $55 each. Each elephant has variable costs of $10 and total fixed costs are $700. If Ellie sells 35 elephants this month, ______.

total variable costs = $350 total sales = $1,925 profits = $875

The contribution margin equals sales minus all Blank______ expenses.

variable

Profit = (selling price per unit × quantity sold) - (__________ expense per unit × quantity sold) - ________ expenses.

variable, fixed

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

Company A produces and sells 10,000 units of its product for $10 per unit. Variable costs are $4 per unit and fixed costs total $30,000. A move to a larger facility would increase rent expense by $8,000, and allow the company to meet its demand for an additional 1,000 units. If the move is made, profits will ______.

decrease by $2,000

Contribution margin is first used to cover _________ expenses. Once the break-even point has been reached, contribution margin becomes _______.

fixed, profit

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

fixed, variable

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

sales, mix

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 Blank______. Multiple choice question.

$99,000

To calculate the degree of operating leverage, divide ______ ________ by net operating income

contribution, margin

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 ______.

($520,000 + $320,000) ÷ $21 = 40,000

Profit equals:

(P × Q - V × Q) - fixed expenses

True or false: The sales mix must be taken into consideration when calculating the break-even point for more than one product due to different selling prices, costs, and contribution margins among the products.

True

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

decrease in the unit variable cost

CVP analysis focuses on how profits are affected by ______.

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