ACCT 3203 Chapter 9

The break-even point in terms of number of units equal fixed costs:

Divided by the contribution margin per unit

An alternative approach to the weighted-average approach to the construction of a short-term profit-planning model for the multi-product firm is referred to as the:

"Sales basket" approach

Given a sales price of $250 per unit, variable cost of $110 per unit, and a break-even point of 800 units, the estimated profit if 810 its are sold is

$1,400

Assume a selling price per unit of $10, and a variable cost per unit of $6. If sales increase by $4,000, what is the increase in operating profit?

$1,60

Given a sales price of $250 per unit, variable cost of $100 per unit, and fixed costs of $60,000, the break-even in dollars is:

$100,000

Given a sales price of $250 per unit, variable cost of $100 per unit, and fixed costs of $60,000, the breakeven in dollars is

$100,000

Product A has contribution margin per unit of $12 and Product B has a contribution margin per unit of $6. Given a sales mix of 25:75, the weighted-average contribution margin per unit is:

$7.50

Assume that a standard "basket" of products consists of 2 units of A and 3 units of B. The unit contribution margins are $5 and $10 for Products A and B respectively. The weighted-average contribution margin per unit is:

$8

Product A has a sales price of $5 per unit and Product B has a sales of $2 per unit. Each product has a contribution margin per unit of $1. Currently, sales consist of 8 units of Product A and 5 units of Product B. Given this information, the weighted-average contribution margin ratio is:

.26

CVP analysis:

1) Can help a firm execute its strategy 2) Identifies risks in increasing fixed costs if volume falls 3) Is a model of the short-term profit structures of an organization

Given a sales price of $300 per unit, variable cost of $180 per unit, and fixed costs of $150,000, the breakeven point in units is

1,250

Fixed cost for the period is $100. Assume that a standard "basket" of products consists of 3 units of X and 2 units of Y. Both products (X and Y) have a contribution margin per unit of $2. The break-even point, in terms of number of "baskets" of products is:

10

If fixed costs, F, are $500 per week, selling price per unit = $7.50, and variable cost per unit = $3.50, the break-even point, in units, is:

125

The amount of pretax profit, hb, that is equivalent of an after-tax profit, hb, of $100 if the tax rate is 20% is:

125

The required sales volume in units, Q, needed to generate an after-tax income of $10,000, given a combined tax rate, t, of 20%, fixed costs, F, of $5,000, and a contribution margin per unit of $50 is:

350

Given a sales price of $375 per unit, variable cost of $125 per unit, and fixed costs of $100,000, the breakeven point in units is

400

The overall break-even point for XYZ, which produced two products (A and B), is 150 units. The standard sales mix is 1 unit of A for every 2 units of B. At the overall break-even point for the firm, the number of units of Product A is:

50

A structured approach to uncertainty/risk analysis that incorporates managerial actions, events, and outcomes (for example, the amount of profit generated during a period), is referred as:

A decision tree (or decision table)

Separate CVP models can be developed for individual products/services as long as there are no significant demand dependencies across products/services and:

All fixed costs are traceable to, or can reasonably be allocated to, individual products/services

When doing CVP analysis using the ABC method:

Batch-level costs may increase or decrease (i.e., are considered variable costs)

Break-even point in units multiplied by the selling price per unit equals:

Break-even in sales dollars

A firm has two products, A and B. After determining the number of "baskets" of products needed to achieve the specified profit objective (e.g., break-even), we convert the number of "baskets" to individual units of each product (e.g., Product A):

By multiplying the number of baskets times the number of units of Product A in a "basket"

Which of the following is NOT one of the five strategic decision making steps for CVP analysis?

Choose the option that has the lowest variable costs

The income statement used in conjunction with CVP (cost volume profit) analysis is called the ______ income statement

Contribution

The amount by which operating profit changes for each unit change in sales is the:

Contribution margin per unit

If selling price per unit is $10, variable cost per unit is $4, and fixed cost per unit is $1, the:

Contribution margin per unit is $6

A model representing how costs and revenues change in response to changes in volume (output) is referred to as:

Cost-volume-profit (CVP) analysis

The degree of operating leverage (DOL) is:

Defined at each output (volume) level, Q

Margin of safety (MOS) is:

Equal to sales above the break-even point

The end product (information) obtained from a decision table/decision tree is a set of:

Expected values for each decision option

Facility-level costs are treated differently under CVP analysis using an activity-based costing (ABC) approach than they are under the conventional approach to CVP

False

Only firms that compete on cost leadership need CVP analysis

False

The basic CP model (without income taxes) can be expanded to include income tax considerations by:

First converting desired after-tax income to pretax dollar equivalents

The basic CVP model (without income taxes) can be expanded to include income tax considerations by:

First converting desired after-tax income to pretax dollar equivalents

If the degree of operating leverage (DOL) at a given output level (Q) is 10, this means that:

From that output level (Q), each % change in sales leads to a 10% change in operating income

When CVP analysis is applied using activity-based costing and batch sized is decreased, the number of units required to break-even or achieve a desired profit:

Increases

Given the choice of two options, one with high fixed cost and low unit variable cost (high-fixed-cost option) and the other with low fixed cost and high unit variable cost (low-fixed-cost option), the sales level where managers would be equally satisfied with either option:

Indifference point

The construction of a profit-planning (i.e., CVP) model in conjunction with value-stream accounting:

Is simplified because the analysis is performed at the product-group level

When comparing two products, the product with a relatively _____ margin of safety (MOS) ratio is the riskier of the two

Low

The margin of safety ratio is calculated as:

Margin of safety in units / planned sales in units

The planned or actual sales above the break-even point, measured in dollars or units is referred to as the ____ of ____

Margin; safety

In CVP analysis, the term operating profit refers to:

Profit exclusive of unusual or non-recurring items before tax

The profit equation depicted in Profit-Volume (PV) graph, is:

Q * (p-v) -F

The required sales volume in units Q, to generate a targeted after-tax profit, h, given an income tax rate, t, is:

Q = (fixed costs + [h / (1-t0]) / contribution margin per unit

If a multi product company cannot reasonably allocate fixed costs to each product, then a constant _____ ______ must be assumed in order to build a single CVP model for profit-planning purposes

Sales mix

The weighted-average contribution margin for a multi-product organization is calculated by weighting the contribution margin of each individual product by that product's:

Sales mix % based on physical units

To calculate the weighted-average contribution margin ratio for a multi-product firm, we weight the contribution margin ratio of each individual product by the product's:

Sales mix % based on relative sales dollars

Total contribution margin for a given accounting period equals:

Sales volume (in units) * contribution margin per unit

The name for a variety of methods that examine how an amount changes in response to changes in one or more factors used to predict that amount is

Sensitivity analysis

The name for a variety of methods that examine how an amount changes in response to changes in one or more factors used to predict that amount is:

Sensitivity analysis

A CPV graph

Shows how costs, revenues, and profits change in response to changes in volume (output)

If the fixed cost per month is $500, the selling price per unit is $10, and the variable cost per unit $8, then:

The break-even point in dollars is $500 (2/10)

The break-even point in dollars equals:

The break-even point in units * the selling price per unit

Operating leverage refers to:

The extent to which fixed costs exist in the cost structure of an organization

At the break-even point:

Total revenue equals total cost

CVP analysis can be used to determine the most cost-effective trade-off between different types of costs

True

For multi-product firm, the total (i.e., overall) break-even point expressed in terms of sales dollars can be determined by dividing total fixed costs, F, by the:

Weighted-average contribution margin ratio

The calculation of an amount given different levels of a fact that influences that amount is _____ analysis

What-if