SB chapter 6

A company has reached its break-even point when the contribution margin __ fixed expenses

equal

Once the break-even point is reached, the sale of an additional unit increases contribution margin by an amount that is ______ the increase in net operating income.

equal to

Total contribution margin equals ______.

fixed expenses plus net operating income

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

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

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

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

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

Ratio

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 ______.

Unit sales to break-even = Fixed expenses ÷ Contribution margin per unit = $305,000 ÷ $40 = 7,625

When making a decision using incremental analysis consider the

change in sales dollars resulting specifically from the decision change in cost resulting specifically from the decision

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 change in profits that occurs due to a change in sales and fixed expenses may be calculated as ____

cm ratio × change in sales - change in fixed expenses

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 New contribution margin = $6,000 (1,000 × ($10 - $4)) - $8,000 new cost = ($2,000) decrease in profits.

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

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

incremental analysis

Terry's Trees has reached its break-even point and has a contribution margin ratio of 70%. For each $1 increase in sales ____

total contribution margin will increase by $0.70 net operating income will increase by $0.70

CVP analysis focuses on how profits are affected by

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