Acc 311 Exam 2 chapter 5

increase by $7,750; Change in net operating income = ($735,000 - $700,000) × 45% - $8,000 = $7,750.

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

$450 increase; The current contribution margin is $39 per unit ($80 - $41) or $19,500 (500 units × $39) total. The new contribution margin would be $35 per unit ($39 - $4 new cost) or $19,950 (570 units × $35),

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 net income would be a ______.

$174,000; Net operating income change = $600,000 × 29%

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

decrease

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

increase by $7,000; Current net operating income = ($100 × 250) - $5,750 = $19,250. With the change salary becomes a variable cost and net operating income would be: ($100 - $30) × 250 × 150% = $26,250

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.

$0.35

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

decrease by $2,000; $6,000 (1,000 × ($10 - $4)) - $8,000 new cost

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

1 - variable expense ratio

How do you find Contribution margin ratio using variable expense ration?

1-CM ratio

How do you find variable expense ratio using contribution margin ratio?

$40,000; (500,000x0.68-300,000)

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

27%

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

decrease by $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

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 the advertising along with the price reduction 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

Total contribution margin will increase by $0.70; net operating income will increase by $0.70

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

variable cost per unit + desired profit per unit

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 =

sales

The variable expense ratio is the ratio of variable expense to what?

change in sales dollars × contribution margin ratio

Using the contribution margin ratio, the impact on net income for a change in sales dollars is

Total profits or losses

What does the vertical distance between the total revenue line and total expense line on a CVP graph represent?

Contribution margin/Sales

What is the equation for contribution margin ratio?

Net sales-variable expenses

What is the equation for contribution margin?

variable expense/sales

What is the equation for variable expense ratio?

Profit graph

What is the simpler form of a CVP graph called?

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

When making a decision using incremental analysis consider the ______.

incremental analysis

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