ACC Ch.6 SB

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

$0.35

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 ______.

$380,000 net operating income= (sales-variable expense)-fixed expense (30,000x40)-(30,000x19)-250,000= 380,000

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 = $184,000 - $85,000 = $99,000

Profit equals ______.

(P × Q - V × Q) - fixed expenses

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 $98,000 ÷ ($50 - $15) = 2,800

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 ______.

40,000 ($520,000 + $320,000) ÷ $21 = 40,000

A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. The BREAK-EVEN point in unit sales is ______.

7,625 $305,000 ÷ $40 = 7,625

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 ______.

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

Account analysis involves a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation.

False

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

False

True or false: Without knowing the future, it is best to have a cost structure with high variable costs.

False

Which of the following statements is correct?

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

True or false: The sales mix must be taken into consideration when calculating the break-even point for more than one product due to different selling prices, costs, and contribution margins among the products.

True

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

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

contribution margin

The calculation of contribution margin (CM) ratio is ______.

contribution margin ÷ sales

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.

According to the CVP analysis model and assuming all else remains the same, profits would be increased by a(n) ______.

decrease in the unit variable cost

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

When constructing a CVP graph, the vertical axis represents ______.

dollars

When a company produces and sells multiple products ______.

each product most likely has different costs a change in the sales mix will most likely change the break-even point each product most likely has a unique contribution margin

Estimating the fixed and variable components of a mixed cost using the ___ approach involves a detailed analysis of what cost behavior should be.

engineering

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

fixed; profit

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

fixed; variable

A company's current sales are $300,000 and fixed expenses total $85,000. The contribution margin ratio is 30%. The company has decided to expand production which is expected to increase sales by $70,000 and fixed expenses by $15,000. If these results occur, net operating income will ______.

increase by $6,000 ($70,000 × 30%) - $15,000 = $6,000 increase

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

margin; safety

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

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

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

ratio

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

sales mix

The term used for the relative proportion in which a company's products are sold is ______.

sales mix

When preparing a CVP graph, the horizontal axis represents ______.

sales volume

The break-even point calculation is affected by ______.

selling price per unit sales mix costs per unit

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

total expense, and total fixed expense

CVP analysis focuses on how profits are affected by ______.

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

The contribution margin equals sales minus all ______ expenses.

variable

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

variable; fixed