acct chapter 5
which equation is used to determine target selling price for a special bulk order sale that does not affect the company's normal sales?
selling price per unit = variable cost per unit + desired profit per unit
Taylor Company has current sales of 1,000 units, at a selling price of $190 per unit, variable costs per unit of $76 and fixed expenses of $96,000. The company believes sales will increase by 300 units, if the company introduces sales commissions as an incentive for the sales staff. The change will decrease the selling price to $175 per unit, increase variable cost per unit to $100 and decrease fixed expenses by $20,000. What is the net operating income after the changes?
Increase of $21,500
Equation used to determine the Degree of Operating Leverage
Degree of Operating Leverage = Contribution Margin / Net Operating Income
Which approach used to estimate fixed and variable components of a mixed cost involves a detailed analysis of what cost behavior should be?
Engineering Approach
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?
Increase of $14,200
the cost equation using the high-low method is found by:
constructing a linear equation (y=mx+b) using the two points of highest and lowest activity to find m then plugging in one of the two points to solve for b
What is represented on the Y axis of a cost-volume-profit (CVP) graph?
dollars
What is the amount of the break-even sales for Grace Food Company?
$1.5 million
which type of analysis used to determine a change in profit ONLY considers the change in costs and change in sales dollars resulting specifically from the decision
incremental analysis
Contribution Margin Statement is PRIMARILY used for
internal decision making
define margin of safety
the amount sales can drop before losses are incurred
If sales increase by $50,000, what will be the net operating income for the company?
$55,000
cost structure
the relative proportion of fixed and variable costs in an organization
Break-even point is the level of sales at which ______.
total revenue equals total costs
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?
100 units
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?
3.00
What are the unit sales required to attain a target profit of $120,000?
4,000 units
When using Excel, the intercept (a), slope (b) and R^2 is determined by 1) selecting ANY data point in the scattergraph plot and 2) selecting ______
Add Trendline
A shift in the sales mix from high-margin items to low-margin items can cause total profit to ________.
decrease
the degree of operating leverage ____ as sales profits rise
decreases
true or false: the degree of operating leverage is constant
false
What is usually plotted as a horizontal line on the CVP graph?
fixed expenses
What is represented vertical distance (on the Y axis) between the total revenue line and the total expenses line of a cost-volume-profit (CVP) graph?
profit or loss
The following equation explains contribution margin:
sales MINUS variable cost
when preparing a multi-product break-even analysis, it is normally assumed that the _______ will remain constant or will NOT change
sales mix
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?
40%
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
the following equation is used to calculate the variable expense ratio:
variable expenses DIVIDED BY sales
Excel depicts the least-squares regression results using the equation form _______.
y = bx + a
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
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?
60%
what does the profit graph allow users to easily identify?
1) the profit at any given sales volume 2) the sales volume required to reach the break-even point
sales mix
The relative proportions in which a company's products are sold. Sales mix is computed by expressing the sales of each product as a percentage of total sales.
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?
$25,000
When using least-squares regression, R2 represents ________.
the measure of goodness of fit
Assume the company is considering a reduction in the selling price by $10 per unit and an increase in advertising budget by $5,000. This will increase sales volume by 50%. What is the net operating income after the changes?
$25,000
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.?
60%
the following equation is used to calculate the contribution margin ratio:
Contribution Margin DIVIDED BY Sales
What is represented on the X axis of a cost-volume-profit (CVP) graph?
sales volume
High-low or least squares regression analysis should only be done if a(n) ________ depicts linear cost behavior.
scattergraph
What is Ralph Corporation's margin of safety in dollars?
$1 million
Operating Leverage
a measure of how sensitive net operating income is to a given percentage change in dollar sales
What is Ralph Corporation's margin of safety in percentage?
20%
What does the green line in the CVP graph indicate?
total expenses
Atlas Corporation sells 100 bicycles during a month. The contribution margin per bicycle is $200. The monthly fixed expenses are $8,000. Compute the profit from the sale of 100 bicycles ________.
$12,000
after reaching the break even point, the net operating income will ______ by the ________ for each unit sold.
increase, contribution margin per unit
The profit graph is based on the following linear equation:
Profit = Unit CM x Q - Fixed Expenses.
What are the sales dollars required to attain a target profit of $120,000?
$400,000
the degree of operating leverage is ____ at sakes levels that are close to the break-even point
greatest
Higher operating leverage produces a ______ percentage increase in net operating income
higher
Generally which of the following is the most accurate for managers to use to estimate the fixed and variable components of mixed cost?
least-squares regression
When given only the fixed costs and the contribution margin ratio (%), the amount of sales ($) needed in order to break even is found by:
sales required to break even = fixed costs DIVIDED BY contribution margin ratio
