ACC CHAP 6

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

$695,000

Profit equals:

(P × Q - V × Q) - fixed expenses.

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

variable expenses ÷ sales is the calculation for the

variable expense ratio

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

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 Blank______.

99,000

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

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

false

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, profit

The calculation of contribution margin (CM) ratio is

contribution margin ÷ sales

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

21,645

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

ratio

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

$1,800,000

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

Contribution margin:

becomes profit after fixed expenses are covered.

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

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

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

A company's break-even point is 17,000 units. If the contribution margin is $22 per unit and 26,000 units are sold, net operating profit will be ______.

$198,000

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

$2,200,000

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 equals:

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

When making a decision using incremental analysis consider the ---.

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

At the break-even point ______.

-net operating income is zero -total revenue equals total cost

CVP analysis focuses on how profits are affected by ______.

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

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

0.35

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

1. sales 2. variable expense 3. contribution margin 4. fixed expenses 5. net operating income

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

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

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

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

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

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

decrease

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

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

increase by $24,000

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

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

leverage

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

margin of safety

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

total expense, and total fixed expense

When preparing a CVP graph, the horizontal axis represents:

unit volume

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

volume, selling price, product mix