Chapter 5 concepts ACC 222

Company A sold 200,000 units. Selling price is $7 per unit, contribution margin is $4 per unit, and the fixed expenses total $632,000. Company A's profit (loss) is Blank______.

$168,000

Anne's Antique Store has a contribution margin ratio of 29%. The break-even point has been reached. If the store generates an additional $600,000 of sales for the year, net operating income will increase by Blank______.

$174,000

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

1800000

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 Blank______.

380000

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 Blank______.

4,800

A change in profits that occurs due to a change in sales and fixed expenses may be calculated as ______.

cm ratio × change in sales - change in fixed expenses

To calculate the effect on profits of a planned increase in sales, you need the increase in units sold, any change in fixed costs and the ______.

contribution margin per unit

Estimating the fixed and variable components of a mixed cost using the_____approach involves a detailed analysis of what cost behavior should be.

engineering

Account analysis involves a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation.

false

Operating leverage is the smallest at sales levels near the break-even point and increases as sales and profits rise.

false

The term "cost structure" refers to the relative proportion of

fixed and variable

Total contribution margin equals ______.

fixed expenses plus net operating income

If operating leverage is high, a small percentage increase in sales produces a ______ percentage increase in net operating income than if operating leverage is low.

higher

he contribution margin statement is primarily used for ______.

internal decision making

The best fitting line minimizes the sum of the squared errors when using Blank______.

least-square regression

If the total contribution margin is less than the total fixed expenses, a Blank______ occurs.

net loss

Operating leverage is a measure of how sensitive Blank______ is to a given percentage change in sales dollars.

net operating income

The single point where the total revenue line crosses the total expense line on the CVP graph indicates ______.

profit equals zero the break-even point

A simpler form of the CVP graph is called the

profit graph

The vertical distance between the total revenue line and the total expense line on a CVP graph represents the total Blank______.

profit or loss

To convert the margin of safety in dollars to the margin of safety in terms of the number of units sold, divide the margin of safety in dollars by the Blank______.

sales price per unit

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

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

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

Using the contribution margin ratio, the impact on net income for a change in sales dollars is Blank______.

change in sales dollars × contribution margin ratio

To prepare a scattergraph plot in Excel, highlight the data and select the "Scatter" subgroup from the

chart

Select all that apply Using the high-low method, the fixed cost is calculated ______.

using either the high or low level of activity after the variable cost per unit is calculated

When using the high-low method, the slope of the line equals the

variable cost per unit

The degree of operating leverage ______.

decreases as sales and profits rise is greatest at sales levels near the break-even point is not a constant

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

$0.35

Ceramic Creations sells pots for $25. The variable cost per pot is $12 and 15,000 pots must be sold to break-even. If Ceramic Creations sells 25,000 pots, net operating income will be:

$130,000.

Adam's Sports Store has a contribution margin ratio of 55% and has already passed the break-even point for the year. If Adam's generates additional sales of $250,000 by year-end, net operating income will increase by Blank______.

$137,500

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

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 Blank______.

$244,068

Pretty in Pearls sold 95 necklaces last month. If variable cost per unit is $40 and fixed costs total $3,085, the company's total variable cost was ______.

$3,800

Company A's product sells for $90 and has a variable cost of $35 per unit. Fixed costs total $550,000. If Company A sells 16,000 units, the contribution margin per unit is ______.

$55

Company A has fixed costs of $564,000 and a contribution margin of 62%. Sales dollars to break-even rounded to the nearest whole dollar equals Blank______.

$909,677

Profit equals:

(P × Q - V × Q) - fixed expenses.

Net operating income equals:

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

Given sales of $100,000 a contribution margin of $40,000, and fixed expenses of $50,000, the result is a Blank______.

10000 net operating loss

Lance, Inc. has sales of 9,000 units. The contribution margin per unit is $32 and fixed costs total $120,000. Lance's profit is $

168000

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 company needs to sell 90,000 units to reach the target profit of $180,000. If each unit sells for $7.50, the total sales dollars needed to reach the target profit is $

675000

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 Blank______.

695000

CVP analysis is based on some _____ that may be violated in practice, but the tool is still generally useful.

Assumptions

Adams, Inc. has sales of $100,000 with a contribution margin of $60,000 and net income of $20,000. Baron, Inc. has sales of $110,000 with a contribution margin of $44,000 and net income of $22,000. Which of the following statements are correct?

Baron's net income grows twice as fast as its sales. Adams has a higher degree of operating leverage than Baron.

Which tool can be used to easily calculate the change in profit resulting from a change in sales price, sales volume, variable costs, or fixed costs?

CVP analysis

The degree of operating leverage

Contribution Margin / Net Operating Income

To estimate the effect on profits for a planned increase in sales, multiply the increase in units sold by the unit --------

Contribution margin

CVP is the acronym for __-__-__

Cost Volume Profit

The contribution margin income statement allows users to easily judge the impact of a change in ______ on profit.

Cost, volume, selling price

Cost structure refers to the relative portion of product and period costs in an organization.

False

Which of the following are assumptions of cost-volume-profit analysis?

In multi product companies, the sales mix is constant. Costs are linear and can be accurately divided into variable and fixed elements.

The contribution margin statement is ordinarily used by those ______.

Inside the company only

To determine the slope, intercept and R² using Excel, select the Trend/Regression type Blank______.

Linear

Multiple Choice Question The percentage of the variation in cost that is explained by activity is Blank______.

R2

Which of the following statements are true?

Scattergraphs are a way to diagnose cost behavior. Plotting data on a scattergraph is an important diagnostic step.

Which of the following statements is correct?

The higher the margin of safety, the lower the risk of incurring a loss.

rue or false: The sales mix must be taken into consideration when calculating the break-even point for more than one product due to different selling prices, costs, and contribution margins among the products.

True

The contribution margin equals sales minus all Blank______ expenses.

Variable

When a company produces and sells multiple products ______.

a change in the sales mix will most likely change the break-even point each product most likely has different costs each product most likely has a unique contribution margin

Company A has sales of $500,000, variable costs of $350,000, and fixed costs of $150,000. Company A has ______.

a contribution margin equal to fixed costs reached the break-even point

Contribution margin:

becomes profit after fixed expenses are covered.

Solving for the sales level needed to achieve a profit of zero is the same process as solving for the sales level needed to

break even

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

To calculate profit, multiply the Blank______ per unit by sales volume and subtract total fixed cost.

contribution margin

Users can easily judge the impact on profits of changes in selling price, cost or volume when using an income statement constructed under the Blank______ approach.

contribution margin

To calculate the effect on profits of a planned increase in sales, you need the increase in units sold, any change in fixed costs and the

contribution margin per unit

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

decrease

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

Goldin Corporation currently pays its salesperson a flat salary of $5,000 per month and is considering paying $20 per unit instead. Sales are currently 200 units per month. Goldin believes the compensation change will increase unit sales by 25%. The current contribution margin is $80 per unit. If the change is implemented, net operating income will Blank______.

increase by $4,000

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 Blank______.

increase by $6,000

Bluin Corporation pays its salesperson a flat salary of $5,750 per month and is considering paying $30 per unit instead. Current unit sales are 250 per month, but Bluin believes the compensation change will increase unit sales by 50%. Bluin's current contribution margin is $100 per unit. If Bluin switches the compensation and sales grow as expected, net operating income will Blank______ per month.

increase by $7,000

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

A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called Blank______.

least-squares regression

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

leverage

It makes sense to perform a high-low or regression analysis if a scattergraph plot reveals

linear cost

The margin of safety percentage is

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

The variable expense ratio is the ratio of variable expense to Blank______.

sales

The relative proportions in which a company's products are sold is referred to as

sales mix

The term used for the relative proportion in which a company's products are sold is

sales mix

When preparing a multi-product break-even analysis, the assumption is ordinarily made that the Blank______ will not change.

sales mix

When preparing a multi-product break-even analysis, the assumption is ordinarily made that the Blank______ will not change. Multiple choice question. total variable costs

sales mix

At the break-even point ______.

total revenue equals total cost net operating income is zero

Select all that apply Candle Central has $1,440 of total variable expense for a sales level of 600 units and $2,160 of total variable expense for a sales level of 900 units. If Candle Central sells 500 units ______.

total variable cost is $1,200 the variable cost per unit is $2.40

True or false: The sales mix must be taken into consideration when calculating the break-even point for more than one product due to different selling prices, costs, and contribution margins among the products.

true

Multiple Choice Question A non-profit organization is trying to determine the fixed and variable costs of providing meals. During the first six months of the year, the following meals were served and the following costs were incurred.

y = $1,450 + $2.50x.

In a least-squares regression equation, a represents the , Incorrect and b represents the

intercept and slope

Marjorie's Mugs sold 300 mugs last year for $20 each. Variable costs were $7 per mug and total fixed costs were $1,700. Marjorie's Mugs' profit was

$2,200

A company has total sales of $1,430,000. Fixed expenses are $657,000 and the contribution margin ratio is 67%. Company profit (loss) is

$301,100

Chrissy's Cupcakes has $832,000 in sales and $265,000 in fixed expenses. Given a contribution margin ratio of 72%, Chrissy's profit (loss) is Blank______.

$334,040

A company sold 750 units with a contribution margin of $120 per unit. If the company has a break-even point of 450 units, the net operating income or (loss) is Blank______.

$36,000

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

Solving for the sales level needed to attain a target profit of $ ______ is the same process as solving for the sales level needed to break-even.

0

A company has an opportunity to make a bulk sale that would not impact regular sales or total fixed expenses. The variable cost per unit is $11 and the company desires a total profit of $4,500. The quoted selling price per unit for 500 units should be $

20

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 Blank______.

21,645

A company incurred $12,000 of maintenance cost for 6,500 machine hours in June and $14,250 of maintenance costs for 8,000 hours in August. Assuming these are the high and low months of activity, the estimated fixed maintenance costs using the high-low method is $

2250

Shonda's Shoes sell for $95 per pair. If Shonda must sell 284 pairs of shoes to break-even, sales dollars needed to break-even equals $

26980

Spice sells paprika for $9.00 per bottle. Variable cost is $2.43 per bottle and Spice's annual fixed costs are $825,000. The variable expense ratio for paprika is Blank______.

27

Adams, Inc. has sales of $100,000 with a contribution margin of $60,000 and net income of $20,000. Baron, Inc. has sales of $110,000 with a contribution margin of $44,000 and net income of $22,000. Thus, the degree of operating leverage is

3 and 2

Given a sales price of $100, variable costs of $70 and a break-even point of 500 units, net operating profit for sale of 501 units will be $

30

Given sales of $1,452,000, variable expenses of $958,320 and fixed expenses of $354,000, the contribution margin ratio is Blank______.

34%

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

Company A sells its product for $10 per unit. If Company A has variable expenses of $5 per unit and fixed expenses of $200,000, the break-even point in units and dollars is Blank______.

40,000 units and $400,000

Shonda's Shoes sell for $95 per pair. If Shonda must sell a total of 284 pairs of shoes to break-even, and a total of 450 pairs to achieve her target profit, sales dollars needed to earn the target profit equals Blank______.

42750

Seating Galore sells high-end desk chairs. The variable expense per chair is $85.05 and the chairs sell for $189.00 each. The variable expense ratio for Seating Galore's chairs is

45

If a company has a variable expense ratio of 35%, its CM ratio must be

65 percent

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 Blank______.

7,625

Cost behavior is considered linear whenever Blank______.

a straight line approximates the relationship between cost and activity

A company is currently selling 10,000 units of product monthly for $40 per unit. The unit contribution margin is $27. The company believes that spending $50,000 per month on advertising will allow them to increase the selling price to $45 and that sales will increase by 750 units per month. The company should ______ the idea because profit will ______.

accept; increase by $24,000

Using the high-low method, the fixed cost is calculated ______.

after the variable cost per unit is calculated using either the high or low level of activity

When making a decision using incremental analysis consider the Blank______.

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

The variable cost per unit using the high-low method is calculated as Blank______.

change in cost ÷ change in units (activity)

When making a decision using incremental analysis consider the

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

Sweet Dreams sells pillows for $25 each. Variable costs are $15 per pillow. The company is considering improving the quality of materials which will increase variable costs to $19. The company expects the improved materials will increase sales from 1,200 to 1,500 pillows per month. The impact of this change on total contribution margin would be a(n)

decrease 3,000 or 3000

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

Fantastic Frames sells units for $15 each. Variable costs total $6 per unit, and fixed costs total $90,000. If the number of units being sold increases by 2,000, net operating income will Blank______.

increase $18,000

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 Blank______.

increase by $7,750

To simplify CVP calculations, it is assumed that Blank______ will remain constant.

selling price

The single point where the total revenue line crosses the total expense line on the CVP graph indicates

the break-even point profit equals zero

The rise-over-run formula for the slope of a straight line is the basis of Blank______.

the high-low method

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

total expense, and total fixed expense

The break-even point is reached when the contribution margin is equal to:

total fixed expenses.

When using the high-low method, fixed costs are calculated after variable costs are determined.

true

CVP analysis focuses on how profits are affected by ______.

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

The high-low method ______.

uses only two data points is based on periods where the activity tends to be unusual

The slope of the regression line represents the Blank______ cost per unit of activity.

variable

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 Blank______.

$1,800,000

A 15% increase in sales resulted in a 40% increase in net income for Company A and a 60% increase in net income for Company B. Based on this, which company has the greater operating leverage?

company B

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 Blank______.

decrease by $16,000

When constructing a CVP graph, the vertical axis represents:

dollars.

Simple CVP analysis can be relied on for changes in volume outside the relevant range.

false

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

false

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

false

True or false: Without knowing the future, it is best to have a cost structure with high variable costs.

false

The statistic R² ______.

is a measure of goodness of fit

A company with a high ratio of fixed costs:

is more likely to experience a loss when sales are down than a company with mostly variable costs. is more likely to experience greater profits when sales are up than a company with mostly variable costs.

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

ratio

According to the CVP analysis model and assuming all else remains the same, profits would be increased by a(n):

decrease in the unit variable cost.

Budgeted sales are $982,000, break-even sales are $932,200, and fixed expenses are $429,000. The company's budgeted margin of safety in dollars is Blank

49800

Gifts Galore had sales revenue of $189,000. Total contribution margin was $100,170 and total fixed expenses were $27,500. The contribution margin ratio was Blank______.

53

Polly's Day Planners sells its planners for $35 each. Sales this year equals $927,500. The margin of safety is $27,300. The margin of safety in units is

780

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

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 Blank______.

8,400

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

8400

If sales increase by 15% and the degree of operating leverage is 6, net operating income should increase by

90

Citrus Fruits sells oranges for $20 per crate. If the company's margin of safety is $180,000, the margin of safety in units is

9000

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______.

99000

When using the high-low method, if the high or low levels of cost do not match the high or low levels of activity, Blank______.

choose the periods with the highest and lowest levels of activity and their associated costs

The break-even point can be affected by ______.

contribution margin per unit total fixed costs sales mix

The calculation of contribution margin (CM) ratio is Blank______.

contribution margin ÷ sales

A change in sales mix ______.

from high-margin to low-margin items may decrease profits despite an increase in sales from low-margin to high-margin items may increase profits despite a decrease in sales

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 Blank______.

increase by $24,000

Pete's Putters sells each putter for $125. The variable cost is $60 per putter and fixed costs total $400,000. Based on this information ______.

the sale of 12,000 putters results in net operating income of $380,000 the contribution margin per putter is $65.

The profit graph allows users to easily identify ______.

the sales volume required to reach the break-even point the profit at any given sales volume

Terry's Trees has reached its break-even point and has a contribution margin ratio of 70%. For each $1 increase in sales

total contribution margin will increase by $0.70 net operating income will increase by $0.70

When using the high low method, the change in cost divided by the change in units equals Blank______.

variable cost per unit

The equation that should be used in setting a target selling price for a special order bulk sale that does not affect a company's normal sales is: selling price per unit = Blank______.

variable cost per unit + desired profit per unit

When a company only produces a single product, the total variable cost can be calculated with the equation ______.

variable cost per unit multiplied by quantity of units sold