Smartbook Managerial Accounting 2203

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

Once the break-even point has been reached, net operating income will increase by the amount of the unit _______ ________ for each additional unit sold

contribution; margin

To calculate the variable cost per unit using the high-low method, the change in ____ is divided by the change in _____

cost; activity

If the total contribution margin is less than the total fixed expenses, a Blank______ occurs.

net loss

Operating leverage is a measure of how sensitive ______ is to a given percentage change in sales dollars.

net operating income

A simpler form of the CVP graph is called the ______ graph

profit

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

profit or loss

The variable expense ratio equals variable expenses divided by

sales

Operating leverage is the smallest at sales levels near the break-even point and increases as sales and profits rise.

false

True or false: Knowledge of previous sales is necessary when using incremental analysis to evaluate a change in profits.

false

Operating leverage is a measure of how sensitive Blank______ is to a given percentage change in sales dollars.

net operating income

At the break-even point ______.

net operating income is zero total revenue equals total cost

True or false: Without knowing the future, it is not obvious which cost structure is better: a structure with higher fixed costs and lower variable costs or a structure with lower fixed costs and higher variable costs.

true

The high-low method

uses only two data points is based on periods where the activity tends to be unusual

The high-low method

uses only two data points is easy to apply

The contribution margin equals sales minus all Blank______ expenses.

variable

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

variable

When a company only produces a single product, the total variable cost can be calculated with the equation ______.

variable cost per unit multiplied by quantity of units sold

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

Net operating income equals:

(unit sales - unit sales to break even) × unit contribution margin.

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 ______.

2250

Cakes by Jacki has $144,000 of fixed costs per year. The contribution margin ratio is 59%. The sales dollars to break-even rounded to the nearest dollar equals

244,068

A company needs to sell 90,000 units to reach the target profit of $180,000. If each unit sells for $7.50, the total sales dollars needed to reach the target profit is $

675000

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

695000

If sales increase by 15% and the degree of operating leverage is 6, net operating income should increase by

90

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

Cost Selling Price Volume

The contribution margin statement is primarily used for ______.

Internal decision making

Contribution margin:

becomes profit after fixed expenses are covered.

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

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 Blank______ approach.

contribution margin

Assuming sales price remains constant, an increase in the variable cost per unit will ______ the contribution margin per unit.

decrease

When constructing a CVP graph, the vertical axis represents:

dollars

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

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

equals

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

false

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

increase by $7,000

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

leverage

The margin of safety percentage is

margin of safety in dollars ÷ total budgeted (or actual) sales in dollars

The amount by which sales can drop before losses are incurred is the _____ of ____

margin; safety

The break-even point is the level of sales at which the profit equals

zero

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

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

Total contribution margin equals ______.

fixed expenses plus net operating income

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

fixed; profits

Tommy's Trains is currently selling 55,000 toy trains for $50 per unit. The variable cost per train is $26 and total fixed costs are $110,000. If Tommy sells an additional 5,000 trains, profits will

increase $120,000

Fantastic Frames sells units for $15 each. Variable costs total $6 per unit, and fixed costs total $90,000. If the number of units being sold increases by 2,000, net operating income will ______.

increase by $18,000

CM ratio is equal to 1 - ______ _______ Ratio

variable; expense

Profit = (selling price per unit × quantity sold) - (______ expense per unit × quantity sold) - _________ expenses

variable; fixed

A company sold 20,000 units of its product for $20 each. Variable cost per unit is $11. Fixed expenses total $150,000. The company's contribution margin is ______.

180,000

Company A has a contribution margin ratio of 35%. For each dollar in sales, contribution margin will increase by

.35

A company has an opportunity to make a bulk sale that would not impact regular sales or total fixed expenses. The variable cost per unit is $11 and the company desires a total profit of $4,500. The quoted selling price per unit for 500 units should be $

20

Shonda's Shoes sell for $95 per pair. If Shonda must sell a total of 284 pairs of shoes to break-even, and a total of 450 pairs to achieve her target profit, sales dollars needed to earn the target profit equals ______.

42750

A company sells 500 sleds per month for $80. Variable costs are $41 per unit and fixed expenses are $3,500 per month. The company thinks that using a new material would increase sales by 70 units per month. If the new material increases variable costs by $4 per unit, the impact on contribution margin would be a

450 increase

Paula's Perfumes has a target profit of $4,000 per month. Perfume sells for $15.00 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

4800

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

65

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 ______.

7625

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

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

8400

Adams, Inc. has sales of $100,000 with a contribution margin of $60,000 and net income of $20,000. Baron, Inc. has sales of $110,000 with a contribution margin of $44,000 and net income of $22,000. Which of the following statements are correct?

Adams has a higher degree of operating leverage than Baron. Baron's net income grows twice as fast as its sales.

Using the high-low method, the fixed cost is calculated

after the variable cost per unit is calculated using either the high or low level of activity

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

assumption

The variable cost per unit using the high-low method is calculated as

change in cost ÷ change in units (activity)

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

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 expects the improved materials will increase sales from 1,200 to 1,500 pillows per month. The impact of this change on total contribution margin would be a(n) ___________ (increase/decrease) of $ _______

decrease 3,000 or 3000

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 ___________ analysis

incremental

To simplify CVP calculations, it is assumed that Blank______ will remain constant.

selling price

The single point where the total revenue line crosses the total expense line on the CVP graph indicates

the break-even point profit equals zero

Pete's Putters sells each putter for $125. The variable cost is $60 per putter and fixed costs total $400,000. Based on this information ______.

the contribution margin per putter is $65. the sale of 12,000 putters results in net operating income of $380,000

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

the high-low method

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

total expense, and total fixed expense

When using the high-low method, fixed costs are calculated after variable costs are determined.

true

The Cutting Edge sells ice skates. Total sales are $845,000, total variable expenses are $245,050 and total fixed expenses are $302,000. The variable expense ratio is Blank______.

29

Given a sales price of $100, variable costs of $70 and a break-even point of 500 units, net operating profit for sale of 501 units will be $

30

When using the high-low method, if the high or low levels of cost do not match the high or low levels of activity,

choose the periods with the highest and lowest levels of activity and their associated costs

A 15% increase in sales resulted in a 40% increase in net income for Company A and a 60% increase in net income for Company B. Based on this, which company has the greater operating leverage?

company b

An increase in sales will increase net operating income by a multiple of that increase in sales. The multiple is known as the

degree of operating leverage

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 degree of operating leverage

is not a constant is greatest at sales levels near the break-even point decreases as sales and profits rise

Simple CVP analysis can be relied on for changes in volume outside the relevant range.

false

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

fixed; variable

If operating leverage is high, a small percentage increase in sales produces a _______ (higher/lower) percentage increase in net operating income than if operating leverage is low.

higher

The variable expense ratio is the ratio of variable expense to

sales

Chitter-Chatter sells phones and has set a target profit of $975,000. The contribution margin ratio is 65%, and fixed costs are $195,000. Sales dollars needed to earn the target profit total

1800000

If sales increase by 5% and the degree of operating leverage is 4, net operating income should increase by

20

Run Like the Wind sells ceiling fans. Target profit for the year is $470,000. If each fan's contribution margin is $32 and fixed costs total $222,640, the number of fans required to meet the company's goal is

21645

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 ______.

2200

Company A has fixed costs of $564,000 and has set a target profit of $800,000. If Company A has a contribution margin ratio of 62%, sales dollars needed to reach the target profit equals

2200000

A company is currently selling 10,000 units of product for $40 per unit. The unit contribution margin is $27. The company believes that spending $50,000 on advertising will increase sales by 750 units per month and enable them to increase the selling price to $45 per unit. If this change is implemented, profits will

24000

Spice sells paprika for $9.00 per bottle. Variable cost is $2.43 per bottle and Spice's annual fixed costs are $825,000. The variable expense ratio for paprika is ______.

27

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?

2800

Pretty in Pearls sold 95 necklaces last month. If variable cost per unit is $40 and fixed costs total $3,085, the company's total variable cost was ______.

3800

Adams, Inc. has sales of $100,000 with a contribution margin of $60,000 and net income of $20,000. Baron, Inc. has sales of $110,000 with a contribution margin of $44,000 and net income of $22,000. Thus, the degree of operating leverage is ______ for Adams, Inc. and _____ for Baron, Inc.

3;2

Budgeted sales are $982,000, break-even sales are $932,200, and fixed expenses are $429,000. The company's budgeted margin of safety in dollars is

49800

A product has a selling price of $10 per unit, variable expenses of $6 per unit and total fixed costs of $35,000. If 10,000 units are sold, net operating income will be $

5000

Gifts Galore had sales revenue of $189,000. Total contribution margin was $100,170 and total fixed expenses were $27,500. The contribution margin ratio was ______.

53

Citrus Fruits sells oranges for $20 per crate. If the company's margin of safety is $180,000, the margin of safety in units is

9000

Company A has fixed costs of $564,000 and a contribution margin of 62%. Sales dollars to break-even rounded to the nearest whole dollar equals

909677

The degree of operating leverage =

contribution margin ÷ net operating income

The calculation of contribution margin (CM) ratio is

contribution margin ÷ sales

Goldin Corporation currently pays its salesperson a flat salary of $5,000 per month and is considering paying $20 per unit instead. Sales are currently 200 units per month. Goldin believes the compensation change will increase unit sales by 25%. The current contribution margin is $80 per unit. If the change is implemented, net operating income will

increase by $4,000

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 is: selling price per unit =

variable cost per unit + desired profit per unit

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

ratio

Ceramic Creations sells pots for $25. The variable cost per pot is $12 and 15,000 pots must be sold to break-even. If Ceramic Creations sells 25,000 pots, net operating income will be:

$130,000.

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

$168,000

Company A sells its product for $10 per unit. If Company A has variable expenses of $5 per unit and fixed expenses of $200,000, the break-even point in units and dollars is

40,000 units and $400,000

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

40000

Which of the following statements is correct?

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

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 spend $60,000 on advertising and reduce the selling price by $2 per box. Management believes this plan will increase sales volume by 24,000 boxes. If management's predictions are correct, making these changes will cause net income for the year to

decrease by $16,000

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

The contribution margin statement is ordinarily used by those ______.

inside the company only

The profit graph allows users to easily identify

the profit at any given sales volume the sales volume required to reach the break-even point

Candle Central has $1,440 of total variable expense for a sales level of 600 units and $2,160 of total variable expense for a sales level of 900 units. If Candle Central sells 500 units ______.

the variable cost per unit is $2.40 total variable cost is $1,200

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

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 Blank______.

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

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

Softie, Inc. produces facial tissues. The company's contribution margin ratio is 77%. Fixed expenses are $240,400. To achieve a target profit of $930,000, Softies' sales must be

1520000

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

334040

Given sales of $1,452,000, variable expenses of $958,320 and fixed expenses of $354,000, the contribution margin ratio is

34

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

Company A has sales of $500,000, variable costs of $350,000, and fixed costs of $150,000. Company A has ______.

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

Margin of safety in dollars is

budgeted (or actual) sales minus break-even sales

When a company sells one unit above the number required to break-even, the company's net operating income will ______.

change from zero to a net operating profit

Jump-It Corporation has a margin of safety of $272,000. The company sold 100,000 units this year. If the company sells each unit for $17, the margin of safety percentage is

16

Lance, Inc. has sales of 9,000 units. The contribution margin per unit is $32 and fixed costs total $120,000. Lance's profit is $

168000

Anne's Antique Store has a contribution margin ratio of 29%. The break-even point has been reached. If the store generates an additional $600,000 of sales for the year, net operating income will increase by Blank______.

174000