AC exam 2 Ch. 5 learnsmart

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

profit equals zero the break-even point

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

contribution margin

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

Variable expenses/Sales is the calculation for the ________ ratio.

variable expense

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

Contribution margin is equal to ______ ____ divided by _____.

contribution margin and sales

The break-even point can be affected by:

contribution margin per unit sales mix total fixed costs

Which of the following are assumptions of cost-volume-profit analysis?

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

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

margin and safety

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

net operating income

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:

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

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

fixed and profit

if operating leverage is high, a small percentage increase in sales can produce a much _ percentage increase in net operating income.

higher

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

$10,000 net operating loss

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 $_____.

$100 - $70 = $30

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

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

$909,677

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

zero

A company's selling price is $90 per unit; its variable cost per unit is $28; and its total fixed expenses are $320,000. What sales volume is needed to achieve the target profit of $200,800

8,400

A change in sales mix:

from high-margin to low-margin items may cause total profits to decrease despite an increase in total sales from low-margin to high-margin items may cause total profits to increase despite a decrease in total sales

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:

$180,000

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:

$301,000

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

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

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

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 284 pairs of shoes to break-even, sales dollars needed to break-even equals $______.

26,980

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:

4,800

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%

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

65

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 $_____.

675,000

CVP is the acronym for __-__-__

Cost Volume Profit

Place the following items in the correct order in which they appear on the contribution margin format income statement.

Sales Variable Expenses Contribution Margin Fixed expenses Net operating income

Which of the following items are found above the contribution margin on a contribution margin format income statement?

Sales and variable expenses

The contribution margin equals sales minus:

all variable costs

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

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 x contribution margin ratio

assuming the sales price remains constant, an increase in the variable cost per unit will __ the contribution margin per unit

decrease

The measure of how a percentage change in sales affects profits at any given level of sales is the:

degree of operating leverage

When constructing a CVP graph, the vertical axis represents:

dollars

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

equals

Bluin Corporation 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 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:

increase by $7,000 per month

A company with a high ratio of fixed costs:

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

The degree of operating leverage:

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

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

sales mix

When preparing a CVP graph, the horizontal axis represents:

sales volume

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 would increase by $15 to $80 per unit. the sale of 12,000 putters results in net operating income of $380,000

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

total expense, and total fixed expense

At the break-even point:

total revenue equals total cost net operating income is zero

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

leverage

Profit = (selling price per unit X quantity sold) - (variable expense per __________ X quantity sold) - ( ___________ expenses)

variable and fixed

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

variable and fixed

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

$40,000

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

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 $______.

5,000

A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. What is the break-even point in unit sales?

7,625

Water World sells wake boards and water skies and pays sales commissions based on product sales price. The wake boards sell for a higher price than the skis and skis have a higher contribution margin per unit than the wake boards. Which of the following are true?

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

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

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

selling price volume costs

CVP analysis focuses on how profile are affected by:

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

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, which of the following statements would be true?

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

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

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

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