accounting 2 chapter 6 smartbook

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

$2,200,000

Given fixed costs of $30,000, variable costs of $2.00 per unit, and a contribution margin of $5.00 unit, units have to be sold in order to break even.

6000

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

Larson's Ltd. sells its product for $12.00 per unit. The contribution margin per unit is $8.00 and fixed costs are $75,000. Larson has to sell to

9,375

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

Sniffles, 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, Sniffles' sales rounded to the nearest dollar must be

$1,520,000

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

Steel, Inc. has a margin of safety in dollars of $559,740. If actual sales were $2,946,000, Steel's margin of safety percentage is

19

Given sales of $110,000, a contribution margin of $75,000 and net operating income of $30,000, operating leverage is

2.5

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 that must be sold to meet the company's goal is

21,645

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

Desks by Daisy sells a student desk for $100 per unit. The variable cost per desk is $40 and Daisy's fixed costs of producing the desks equals $15,000 per month. Daisy needs to sell Blank 1Blank 1 \ , Incorrect Unavailable desks per month in order to break-even

250

A company sells a product for $80 per unit and has a contribution margin ratio of 45%. Fixed costs total $180,000. Sales dollar to break even equals

400,000

company sells its product for $40 per unit. Variable costs are $12 per unit. Total fixed costs are $50,000. In order to reach the profit goal of $90,000 the company must sell

5000

Given sales of 10,000 units per month, sales price per unit of $4.00, variable costs of $1.80 per unit and and total fixed costs of $5,000, the contribution margin ratio is

55

Jacki's Jewels sells 10,000 necklace & earring sets per year. Fixed costs are $80,000 and variable costs are $20 per set. Jacki is planning to increase the quality of the stones, which will increase variable costs by $8 per set and increase sales by 25%. If Jacki increases the quality of the stones, what price will she need to charge to attain her target profit of $60,000 per year?

$39.20

Given budgeted sales of $982,000, break-even sales of $932,200, and fixed expenses of $429,000, the budgeted margin of safety in dollars is

$49,800

The formula used to calculate the sales volume needed to achieve a target profit is

(Target profit + Fixed expenses) ÷ Unit contribution margin

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

Given net operating income of $50,000, contribution margin of $150,000 and sales of $300,000, the degree of operating leverage of

3

The equation for the profit equation method is

Total Sales Revenue - Total Variable Costs - Total Fixed Costs = Profit

Contribution margin equals sales minus

all variable costs

CVP

allows managers to see how changing one variable can impact another can be used to make many different decisions can be used for "what-if" analysis

The difference between break-even analysis and target profit analysis is the

amount that profit is set to

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

and total cost

The weighted average unit contribution margin

assumes that the percentage of each product sold is constant is based on the relative percentage of each unit sold is used instead of the single product contribution margin in multi-product break-even analysis

If a company raises the price of a product with no change in costs, the unit contribution margin and contribution margin ratio will

both increase

The contribution margin stated as a percentage of sales dollars is the

contribution margin ratio

Sweet Dreams sells 15,000 pillows per year for $25 per unit. Variable cost per unit is $14. Sweet Dreams wants to improve customer satisfaction by using higher quality direct materials which will increase the variable cost per unit to $19. Fixed costs per year total $90,000. If sales increase by 5,000 units per year, what price will Sweet Dreams have to charge to earn the same profit it is earning now ($75,000 per year)?

27.25

A company has fixed costs of $25,000 and a weighted average unit contribution margin of $25. Of the sales, 65% are Product XYZ and 35% are Product TDW. In order to break even the company must sell units of Product XYZ and units of Product TDW.

650, 350

Given total fixed costs of $35,000 and a contribution margin ratio of 40%, $ of revenue must be earned to break even.

87500

Degree of operating leverage equals

Contribution margin ÷ Net operating income

The extent to which a company uses fixed costs (as opposed to variable costs) in its operations is called

cost structure

Contribution margin

covers fixed cost and profit

When a company increases the selling price of a product with no change in variable cost per unit or total fixed costs, the break-even point for that product will

decrease

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

The break-even point is reached when total revenue is

equal to

True or false: The margin of safety is the excess of break-even sales dollars over budgeted (or actual) sales dollars.

false

A degree of operating leverage greater than one means that managers are using Blank______ to create operating leverage.

fixed costs

If operating leverage is high, a small percentage increase in sales produces a(n) Blank______ percentage increase in net operating income than if operating leverage is low.

higher

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 increase advertising which will increase fixed costs by $60,000. Management believes the advertising along with a $2 reduction in the selling price per box 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

increase by 16000

Setting two profit equations so that they yield the same profit allows managers to calculate the

indifference point

The margin of safety percentage is

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

The weighted average unit contribution margin is the average unit contribution margin of multiple products weighted according to

percentage of units sold

The break-even point can be affected by

product mix total fixed costs sales mix

How much contribution margin is generated per dollar of sales revenue is the contribution margin___________

ratio

An extension of break-even analysis that allows managers to determine units or sales needed to achieve an earning's goal is called analysis.

target profit analysis

At the break-even point,

total revenue equals total cost profit is zero

The amount that each unit sold contributes to fixed costs and profit is

unit contribution margin

When preparing a CVP graph, the slope of the total cost line represents

variable cost per unit

Contribution margin equals sales minus

variable manufacturing costs variable selling and administrative costs

The goal of break-even analysis is to find the level of sales where profit is equal to

zero