ManagerialAccounting Ch5 Learnsmart

Shonda's Shoes sell for $95 per pair. If Shonda must sell 284 pairs of shoes to break-even, sales dollars needed to break-even equals...

$26,980 95$*284= 26,980

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

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:

$380,000 NOI=30,000 * (40$-19$) - 250,000$ = 380,000$

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

0

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

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

False

To calculate the impact on net income using the contribution margin ratio, _______ the change in _______ by the contribution margin ratio

multiply; sales

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

sales mix

For a single product company, the margin of safety in ________ form is calculated by dividing the margin of safety in dollar by the selling price per unit

unit

Profit = (selling price per unit * quantity sold) - (variable expenses per ________ * quantity sold) - __________ expenses

unit; fixed

Delis Delight has fixed cost per year of $312,000 and a contribution margin ratio of 40%. Calculate the sales dollars needed to break even.

$780,000 312,000/40% = 780,000

True or False: When a company sells multiple products, an increase in total sales always results in an increase in total profits

False

True or False: Simple CVP analysis can be relied on for changes in volume outside the relevant range

False The CVP model must be adjusted for activity levels outside the relevant range

The break-even point indicates the sales volume needed to make contribution margin _______ to fixed expenses

equal

Contribution margin divided by sales is the formula for....

contribution margin ratio

Blissful Blankets' target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets Blissful Blankets needs to sell in order to achieve its target profit is: a. 9,524 b. 40,000 c. 24,762 d. 15,200

b

The target profit at the break-even point is: a. the value of total variable cost b. zero c. the contribution margin

b

When referring to a company with multiple products, which of the following statements i correct? a. a change in the sales mix will have no effect b. a change in the sales mix will most likely result in a change to the break-even point c. a change in the sales mix will always result in an increase to profits d. the sales mix may never be changed

b

The profit graph allows users to easily identify: a. total expenses incurred at any given sales volume b. the sales volume required to reach the break-even point c. the profit at any given sales volume

b & c

CVP analysis allows companies to easily identify the change in profit due to changes in: a. selling price b. costs c. volume d. location e. management

a. selling price b. costs c. volume

Candle Central has $1,440 of total variable expenses for a sales level of 600 units $2,160 of total variable expense for a sales level of 900 units. If Candle Central sells 500 units: a. the variable cost per unit is $2.40 b. sales are $3,600 c. total fixed cost is $1,440 d. total variable costs is $1,200

a. the variable cost per unit is $2.40 $1440/600=2.40 per unit and 216-/900=2.40 per unit d. total variable costs is $1,200 $1440/600=2.40 per unit * 500 units = 1,200 total variable cost

The CVP graph evaluates CVP relationships over a wide range of _______ levels

activity

CVP analysis is based on some...... that may be violated but the tool is still generally useful

assumptions

Place the following items in the order in which sales dollars are applied on a contribution margin income statement 1. variable costs 2. net income 3. fixed expenses

1. variable costs 3. fixed expenses 2. net income

Bluin Corp pays its salesperson a flat salary of 5,750 per month and is considering paying her 30$ per unit instead. Current unit sales are 250 per month, but Bluin believe the compensation change will increase unit sales by 50%. Bluins current contribution margin is $100 per unit. If bruin switches the compensation and sales grow as expected, net operating income will:

Increase by 7,000 per month current net operating income = (100*250)-5750=19,250 with the change in salary becomes a variable cost and net operating income would be: (100-30$)*250*150%=26,250, an increase of 7,000 per month

Place the following items in the correct order in which they appear on the contributions margin format income statement 1. Sales 2. variable expenses 3. contribution margin 4. net operating income 5. fixed expenses

Sales variable expenses contribution margin fixed expenses net operating income

Water world sells wake boards and water skis and pay sales commissions based on product sales price. The wake boards sell for a higher price that the skis and the skis have a higher contribution margin per unit that the wake boards. which of the following are true?

Salespersons will be motivated to sell more wake boards as they will create a higher commissions per unit for them. The company would rather see more skis sold as it creates the higher profit per unit for the company

Which of the following represents 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?

Selling price per unit = Variable cost per unit + desired profit per unit a SPECIAL ORDER BULK SALE WILL NOT INCREASE FIXED COSTS AND THERE FORE THEY SHOULD NOT BE CONSIDERED IN SETTING A PRICE. VARIABLE COSTS ARE WHAT WILL BE INCURRED TO COMPLETE THE ORDER

Factors which determine whether a cost structure with higher variable costs is better than one with higher fixed costs include: a. average sales price per unit b. long-run trends in sales c. the attitude of owners toward risk d. year-to-year fluctuations in the level of sales

b, c, d

A company with a high ratio of fixed costs: a. will not be concerned about fluctuating sales b. will be able to avoid some of the fixed costs when sales decrease by lowering production c. is more likely to experience greater profits when sales are up than a company with mostly variable costs d. is more likely to experience a loss when sales are down than a company with mostly variable costs

c & d

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: a. increase by $6,000 b. increase by $10,000 c. decrease by $8,000 d. decrease by $2,000

d

Net operating income can be calculated as: a. (dollar sales - dollar sales to break even) x unit contribution margin b. dollar sales - dollar sales to break even c. unit sales x unit contribution margin d. (unit sales - unit sales to break even) x unit contribution margin

d

If a company has sales of 100,000 a CM of $40,000, and fixed expenses of 50,000 the company has a

10,000 net operating loss 40,000-50,000= -10,000

Company A sells its product for $10 per unit. If Company A has variable expenses of $5 per unit and foxed expenses of $200,000, the break even point in units and dollars is: 50,000 units and $500,000 20,000 units and $200,000 13,330 units and $133,330 40,000 units and $400,000

40,000 units and $400,000 $200,000/5=40,000 units x$10 each $400,000

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 expenses= $85.05/$189=45%

Orange You Going to Smile? sells oranges for $20 per crate. If the company's margin of safety is $180,000, the margin of safety in units is ________ crates

9,000

Variable expenses ratio

Total variable expenses / total sales dollars

If the total contribution margin is less than the total fixed expenses, then a ________ will occur a. net loss b. net profit c. break-even point

a

The measure of how a percentage change in sales affects profits at any given level of sales is the: a. degree of operating leverage b. contribution margin ratio c. margin of safety

a

If a company with excess capacity has an opportunity to take an order in addition to its regular sales, the sales price per unit must cover which of the following costs? a. variable manufacturing cost per unit b. fixed costs per unit for units included in the order c. any cost incurred by accepting the order d. total fixed costs

a & c

When making a decision using incremental analysis consider the: a. change in sales dollars resulting specifically from the decision b. old income statement in comparison to the new income statement c. volume that would occur regardless of the decision d. change in cost resulting specifically from the decision

a & d

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

b. costs are linear and can be accurately divided into variable and fixed elements d. in multi-product companies, the sales mix is constant

When constructing a CVP graph, the vertical axis represents: a. variable costs b. unit volume c. dollars d. fixed costs

c. dollars

CVP is the acronum for _______-_____-_______

cost-volume-profit

The contribution margin statement is primarily used for: a. both internal and external reporting b. tax purposes c. external financial statement reporting d. internal decision making

d

Using the contribution margin ratio, the impact on net income for a change in sales dollars is: a. change in sales dollars per unit - contribution margin ratio b. change in total contribution margin x contribution margin ratio c. variable expense per unit - contribution margin ratio d. change in sales dollars x contribution margin ratio

d

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: a. decrease by 8,000 b. increase by 15,750 c. decrease by 12,250 d. increase by 7,750

d. increase by 7,750 change in net operating income = (735,000-700,000)*45%-8,000=7,750

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

margin of safety

A measure of how sensitive net operating income is to a given percentage change in sales dollars is known as _________ ________

operating leverage

The vertical distance between the total revenue line and the total expense line on a CVP graph represents the total

profit or loss

Selling price per unit multiplied by the quantity sold equals total ________

sales

The Contribution margin is equal to sales minus

variable expenses

A company is operating within the relevant range of activity and had excess capacity . given an opportunity to take an order in addition to its regular sales, the sales price per unit must cover:

variable manufacturing cost per unit any cost incurred by accepting the order

When constructing a CVP graph, the horizontal (x) axis represents unit ________

volume

On a profit graph, the sales volume where profit is ________ is the break-even point

zero

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...

$55

Seth's Speakers had actual sales of $1,630,000. If break-even sales equals $935,000, Seth's margin of safety in dollars is:

$695,000 $1,630,000-$935,000=$695,000

The break-even point calculation is affected by: a. number of batches produced b. costs per unit c. sales mix d. selling price per unit

b, c, d

Company A has a CMR of 35%. for each dollar in sales, CM will increase by: a. 0.65 b. 0.35

b. 0.35

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

CVP analysis focuses on how profits are affected by: a. mix of products sold b. unit variable cost c. total fixed costs d. break-even point e. sales volume f. selling price

f, e, b, c, a

A company is currently selling 10,000 units of product. The selling price is $40 per unit and the contribution margin is $27 per unit. The company thinks spending $50,000 on advertising will increase sales by 750 units per month and allow them to increase the selling price to $45 per unit. If this is correct, the company should: a. accept the idea because profit will increase by $24,000 b. reject the idea because profit will decrease by $29,750 c. accept the idea because profit will increase by $3,750 d. accept the idea because profit will increase by $74,000

a An increase in selling price of $5 will increase the contribution margin $5. The increased CM of $74,000 ((10,750*$32)-(10,000* $27)) - the additional fixed costs of $50,000 = a profit increase of $24,000

The break-even point can be affected by: a. total fixed costs b. net operating income c. contribution margin per unit d. sales mix

a, c, d

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: a. $180,000 b. $30,000 c. $150,000 d. $130,000

a. $180,000 Contribution margin = 20,000 * ($20-$11) =$180,000

Pretty in pearls sold 95 necklaces last month. If variable cost per unit is 40$ and fixed costs total $3085, the company total variable cost was: a. 3,800 b. 6,885 c. 3,085 d. 40

a. 3,800 total variable cost = 95*40=3,800

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

b. cost c. selling price d. volume

The contribution margin equals sales minus _______

all variable costs

Pete's Putters sells each putter for $125. The variable cost is $60 per butter and fixed costs total $400,000. Based on this information: a. Pete's Putters unable to make a profit b. the sale of 12,000 putters results in net operating income $380,000 c. lowering variable cost per unit to $45 would result in a contribution margin of $70 per unit d. the contribution margin per putter is $65

b. the sale of 12,000 putters results in net operating income $380,000 12,000 units * $65 contribution margin = 780,000- 400,000= 380,000 d. the contribution margin per putter is $65

Company A sold 200,000 units. Selling price is $7 per unit, contribution margin is 4$ per unit, and the fixed expenses total $632,000. Company A's profit(loss) is: a. (32,000) b. 768,000 c. 168,000 d. 18,000

c. $168,000 Profit= 200,000*$4-$632,000=$168,000

Gifts Galore sold $189,000 worth of wrapping paper last year. Total contribution margin was $100,170 and total fixed expenses were $27,500. The contribution margin ratio was: a. 38% b. 68% c. 53% d. 47%

c. 53% CMR= 100,170 / 189,000 = 53%

A company has a target profit $204,000. The company's fixed costs are $305,000. The CM per unit is $40. What is the break-even point in unit sales? a. 5,100 units b. 12,725 c. 7,625

c. 7,625 units Break-even point = $305,000/$40 = 7,625

After reaching the break-even point, a company's net operating income will increase by the _______ ________ per unit for each additional unit sold

contribution margin

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

contribution margin

Sales total $500,000, and fixed costs total $300,000. The contribution margin ratio is 68%. Profit =

$40,000 (500,000 * 68%) - $300,000 = $40,000

The equation used to calculate the VARIABLE EXPENSE RATIO using total values.

Total variable expense/total sales dollars

A comp 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. (10,000) c. (64,000) d. 54,000

a. 36,000 net operating income =(750-450)*120= 36,000

To solve for net operating income at any sales volume above the break-even point requires knowledge of the: a. contribution margin per unit b. break-even unit sales c. projected unit sales d. number of units produced e. total contribution margin f. total variable expenses

a. contribution margin per unit b. break-even unit sales c. projected unit sales

The single point where the total revenue line crosses the total expense line on the CVP graph indicates: a. profit equals zero b. profit is less than zero c. the break-even point d. profit is greater than zero

a. profit equals zero c. the break-even point

Goldin Corporation currently pays its salesperson a flat salary of $5,000 per month and is considering paying him $20 per unit instead. Sales are currently 200 units per month. Goldin believes the compensation change will increase unit sales by 50%. The current contribution margin is $80 per unit. If the change is implemented, net operating income will: a. decrease by $7,000 b. decrease by $1,000 c. increase by $7,000 d. increase by $1,000

c Current income: ($80*200)-$5,000 = $11,000. With the change salary becomes a variable cost: ($80-$20)*200*150% = $18,000, an increase of $7,000 per month

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

contribution margin

To estimate the effect on profits for a planned increase in sales, multiply the increase in units sold by the unit _______ _______

contribution margin

A company with a high ratio of fixed costs will be more likely than a company with a high ratio of variable costs to report an operating _______ if sales suffer a severe decline

loss

TO PREPARE A CVP GRAPH LINES MUST BE DRAWN REPRESENTING TOTAL REVENUE

total expense, and total fixed expense

Tasty Tangerine is currently selling 50,000 boxes for $25 per box. Variable cost per box is $17 and fixed costs total $260,000. A plan is being considered to increase advertising and reduce the selling price. The advertising would increase foxed costs by $60,000. management believes the advertising along with a $2 reduction in the selling price per box would increase sales volume by 24,000 boxes. as a result, net operating income would: a. decrease by $16,000 b. increase by $132,000 c. decrease by $104,000 d. increase by $44,000

a. decrease by $16,000 ((74,000 boxes * $6)-(50,000 boxes * $8)) (444,000)- (400,000)=44,000 $44,000 - $60,000= - $16,000 if the change is implemented, total contribution margin would increase by $44,000((74,000 boxes * $6)-(50,000 boxes * $8)) Additional contribution margin of $44,000 - $60,000 in new fixed costs = a net operating income decrease of $16,000

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: a. net operating income will increase by $0.70 b. net operating income will increase by $0.30 c. total contribution margin will increase by $0.30 d. total contribution margin will increase by $0.70

a. net operating income will increase by $0.70 d. total contribution margin will increase by $0.70

The variable expense ratio is the ratio of variable expense to: a. sales b. the contribution margin c. fixed expense d. net operating income

a. sales

Which of the following must be subtracted from sales to reach the contribution margin? a. fixed overhead b. variable overhead c. variable direct materials d. fixed selling and administrative costs e. variable direct labor f. variable selling and administrative costs

b, c, e, f

Chitter Chatter sells phones and has set a target profit $975,000. The contribution margin ratio is 65%, and fixed costs are $195,000. Sales dollars needed to earn the target profit total: a. $1,170,000 b. $1,800,000 c. $1,200,000 d. $760,500

b. $1,800,000 Sales= ($975,000+$195,000)/0.65= $1,800,000

Annes antiques store has a CM ratio of 29%. The break even point has been reached. of the store generated an additional $600,000 of sales for the year, net operating income will increase by: a. $600,000 b. $174,000 c. $426,000

b. $174,000 Net operating income change = 600,000*29% = 174,000

The equation method to compute unit sales to achieve a target profit it: Profit = a. (selling price per unit * unit sales)-(variable cost per unit * unit sales) b. (unit contribution margin * unit sales) - fixed expense c. gross margin - fixed expense d. (selling price per unit * unit sales) - fixed expense

b. (unit contribution margin * unit sales) - fixed expense

Paula's Perfumes has a target profit of $4,000 per month. Perfume sells for $15 per bottle and variable costs are $13.50 per bottle. Fixed costs are $3,200 per month. The number of bottles that must be sold each month to earn the target profit is: a. 7,200 b. 4,800 c. 534 d. 267

b. 4,800 sales volume=($4000+$3200)/($15.00-$13.50)=4,800 bottles Unit sales to attain the target profit = (target profit + fixed expenses) / unit CM

Vivian's violins has sales of $326,000, contribution margin of $184,000 and fixed costs total $85,000. Viv Violins net operating income is a. $57,000 b. 99,000 c. 241,000

b. 99,000 Net operating income = $184,000-85,000 = 99,000

Company A has sales of $500,000, variable costs of $350,000, and fixed costs of $150,000. Company A has: a. earned a net operating profit b. reached the break-even point c. a contribution margin equal to fixed costs d. incurred a net operating loss

b. reached the break-even point c. a contribution margin equal to fixed costs

Sweet Dreams sells pillows for $25 each. Variable costs are $15 per pillow. The company is considering improving the quality of materials which will increase variable costs to $19. The company currently sells 1,200 pillows per month and expects that the improved materials would increase sales to 1,500 per month. The impact of this change on total contribution margin would be a _________(increase or decrease) of $________

decrease; $3,000 [1,500*($25-$19)]-{1,200*($25-$15)]= -$3,000

In order to convert the margin of safety from dollar form to percentage form, the margin of safety in dollars must be ________ by the budgeted (or actual) sales in dollars

divided

Net operating income can be estimated for any sales volume above the break-even point by _________ the number of units sold above the break-even point by the unit contribution margin

multiplying