ACCT CH. 6 Learning Objectives

With regards to interpreation, what are the important areas that appear on a CVP graph?

Break-even point, loss area, and profit area

What is the amount of the break-even sales for Grace Food Company?

CM ratio = CM/Sales Breakeven ratio = fixed expenses/CM ratio 870,000/(1,200,000/2,000,000)= 1.5 million

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company's contribution margin ratio?

CM= 50-20= 30 30/50= 0.6

Winter Corporation's current sales are $500,000. The contribution margin is $300,000 and the net operating income is $100,000. What is the company's degree of operating leverage?

Degree of operating leverage = CM/Net Operating Income 300000/100000=3

Future Corporation has a single product; the product selling price is $100 and variable costs are $60. The company's fixed expenses are $10,000. What is the company's break-even point in sales dollars?

Dollar sales to break-even = Fixed expenses of $10,000 ÷ CM Ratio of 0.40 = $25,000.

What is usually plotted as a horizontal line on the CVP graph?

Fixed expenses

Break-even point is the level of sales at which ______.

total revenue equals total costs

If sales increase by $50,000, what will be the net operating income for the company?

$55,000 x 50% CM * $50,000 increase= $25,000 change in CM new CM=$50,000+$25,000=$75,00075,000-$20,000=NOI

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company's variable cost ratio?

1- CM = 1- 0.6 = 0.4

Atlas Corporation sells 100 bicycles during a month at a price of $500 per unit. The variable expenses amount to $300 per bicycle. How much does profit increase if it sells one more bicycle?

200

What is Ralph Corporation's margin of safety in dollars? Selling price$200per unit Variable expenses$150per unit Fixed expenses$1,000,000per year Unit sales 25,000per year

Margin of Safety in dollars = Total budgeted (or actual) sales - Break-even sales = $5,000,000 - $4,000,000 = $1,000,000.

Taylor Company has current sales of 1,000 units, which generates sales revenue of $190,000, variable costs of $76,000 and fixed expenses of $96,000. The company believes sales will increase by 300 units if advertising increases by $20,000. What is the change in net operating income after the changes?

New contribution margin per unit = $175 − $100 = $75New contribution margin = $75 × 1,300 units = $97,500New fixed cost = $96,000 − 20,000 = $76,000New net operating income = $97,500 − 76,000 = $21,500INCREASE of $21,500

Atlas Corporation sells 100 bicycles during a month. The contribution margin per bicycle is $200. The monthly fixed expenses are $8,000. What is the profit from the sale of 100 bicycles?

Profit = (marginal cost x quantity of bicycles) - expenses 12,000=(200 x 100) -8000

The profit graph is based on the following linear equation:

Profit = Unit CM x Q - Fixed Expenses.

Walton Corporation is currently selling 104 units of its product. The company is deciding the price that it should charge for a bulk order of 40 units. The variable cost per unit is $200. This order will not involve any additional fixed costs and the company's current sales will not be affected. The company targets a profit of $4,000 on the bulk order. What selling price per unit should the company quote for the bulk order? (Round your answer to the nearest whole dollar.)

Step 1 Calculate the relevant cost of the bulk order = $200× 40 = $8,000 Step 2 Calculate the total revenue Total revenue = Total relevant cost + Target profit = 8,000 + 4,000 =$12,000 Step 3 Determine the selling price Selling price = $12,000/40 = $300 Selling price = $300

Frank Corporation has a single product. Its selling price is $80 and the variable costs are $30. The company's fixed expenses are $5,000. What is the company's break-even point in unit sales?

Unit CM = Selling price of $80 - Variable expense of $30 = $50.Unit sales to break-even = Fixed expenses of $5,000 ÷ $50 = 100 units.

What is represented on the X axis of a cost-volume-profit (CVP) graph?

Unit volume

A shift in the sales mix from high-margin items to low-margin items can cause total profit to ________.

decrease

What are the sales dollars required to attain a target profit of $120,000? Target profit$120,000 Unit contribution margin$40 Fixed expenses$40,000 Contribution margin ratio (CM ratio) 0.40 Selling price$100

dollar sales to attain a target profit = (target profit + fixed expenses)/ CM ratio

Taylor Company has current sales of 1,000 units, which generates sales revenue of $190,000, variable costs of $76,000 and fixed expenses of $96,000. The company believes sales will increase by 300 units if advertising increases by $20,000. What is the change in net operating income after the changes?

ontribution margin per unit = ($190,000 − $76,000)/1,000 units = $114 per unit$114 x 300 units = $34,200Less increase in fixed costs -$20,000Change in net operating income = $14,200

The current sales of Trent, Inc., are $400,000, with a contribution margin of $200,000. The company's degree of operating leverage is 2. If the company anticipates a 30% increase in sales, what is the percentage change in net operating income for Trent, Inc.?

percentage change in net operating income = degree of operating leverage x percentage change in sales 3 x .30 = .60

contribution margin =

sales- variable expenses

Once the break-even point has been reached, net operating income will increase by the amount of the _____ for each additional unit sold.

unit contribution margin

What are the unit sales required to attain a target profit of $120,000? Target profit$120,000 Unit contribution margin$40 Fixed expenses$40,000 Contribution margin ratio (CM ratio) 0.40 Selling price$100

unit sales to attain the target to profit= (target profit + fixed expense)/ unit contribution margin (120,000 +40,000)/40 = 4,000 units

What is Ralph Corporation's margin of safety in percentage? Selling price$200per unit Variable expenses$150per unit Fixed expenses$1,000,000per year Unit sales 25,000per year

Margin of Safety Percentage = Margin of Safety in dollars / Total budgeted (or actual) sales in dollars = ($5,000,000 - $4,000,000) / $5,000,000 = 20%.