Chapter 5 Smartbook Managerial Accounting

A company reported $100,000 in sales and $80,000 in variable costs at the breakeven point of 200 units. If the company sells 201 units, net profit will be ______. $200 $400 $500 $100

$100

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 ______. . $112,500 $137,500 $250,000

$137,500

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 ______. 53% 38% 47% 68%

53%

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

False

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

False

After reaching the break-even point, a company's net operating income will increase by the _______ _______per unit for each additional unit sold

contribution margin

The degree of operating leverage = ______. contribution margin ÷ net operating income total sales ÷ net operating income contribution margin ÷ total sales gross margin ÷ net operating income

contribution margin ÷ net operating income

The calculation of contribution margin (CM) ratio is ______. - contribution margin ÷ sales - variable expenses ÷ contribution margin - net operating income ÷ total contribution margin - contribution margin ÷ total expenses

contribution margin ÷ sales

A company has reached its break-even point when the contribution margin_____ fixed expenses.

equals

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

false

The term "cost structure" refers to the relative proportion of _____and ______costs in an organization.

fixed and variable

Total contribution margin equals ______. - variable expenses plus net operating income - total sales minus net operating income - total sales minus fixed expenses - fixed expenses plus net operating income

fixed expenses plus net operating income

Contribution margin is first used to cover _____expenses. Once the break-even point has been reached, contribution margin becomes_______

fixed, income

If operating leverage is high, a small percentage increase in sales produces a (higher/lower) percentage increase in net operating income than if operating leverage is low

higher

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

leverage

The amount by which sales can drop before losses are incurred is the _____of_____

margin safety

Operating leverage is a measure of how sensitive ______ is to a given percentage change in sales dollars. selling price per unit net operating income total gross margin total variable expense

net operating income

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

ratio

The variable expense ratio is the ratio of variable expense to ______. fixed expense net operating income sales the contribution margin

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 ______. operating leverage sales price break-even sales mix

sales mix

When preparing a CVP graph, the horizontal axis represents ______. variable costs sales volume sales dollars total costs

sales volume

CVP analysis focuses on how profits are affected by ______. (Select all that apply) sales volume break-even point total fixed costs selling price unit variable cost mix of products sold

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

Which of the following items are found above the contribution margin on a contribution margin format income statement? (Select all that apply) Net operating income Fixed expenses Variable expenses Sales

sales, variable expenses

Profit = (selling price per unit × quantity sold) - _______expense per unit × quantity sold) - expenses.

variable,fixed

The break-even point is the level of sales at which the profit equals _____

zero

Company A has a contribution margin ratio of 35%. For each dollar in sales, contribution margin will increase by ______. $0.35 $0.65

$0.35

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 ______. $426,000 $600,000 $174,000

$174,000

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 ______. $150,000 $30,000 $180,000 $130,000

$180,000

A company's break-even point is 17,000 units. If the contribution margin is $22 per unit and 26,000 units are sold, net operating profit will be ______. $0 $198,000 $572,000 $374,000

$198,000

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 ______. . $54,000 $36,000 ($10,000) ($64,000)

$36,000

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 ______. $630,000 $(249,979) $1,520,000 $380,000

$380,000

Profit equals ______. (P × Q - V × Q) + fixed expenses (P × Q - V × Q) - fixed expenses (P × Q+ V × Q) - fixed expenses (P - V - fixed expenses) × Q

(P × Q - V × Q) - fixed expenses

Net operating income equals ______. - unit sales × unit contribution margin - (dollar sales - dollar sales to break even) × unit contribution margin - dollar sales - dollar sales to break even - (unit sales - unit sales to break even) × unit contribution margin

(unit sales - unit sales to break even) × 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? 2,800 6,400 3,600 1,960

2,800

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 ______. 73% 100% 27% 54%

27?%

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 $. ?

5,000

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 ______. 12,725 5,100 7,625

7,625

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 ______. $57,000 $99,000 $241,000

99,000

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 - earned a net operating profit - incurred a net operating loss - reached the break-even point

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

Margin of safety in dollars is ______. -break-even sales minus budgeted (or actual) sales -net income minus fixed costs -budgeted (or actual) sales minus break-even sales -net income minus break-even sales

budgeted (or actual) sales minus break-even sales

When a company sells one unit above the number required to break-even, the company's net operating income will ______. - increase or decrease depending on total fixed costs - change from zero to a net operating profit - increase by the sales price of the extra until sold - decrease by the contribution margin per unit

change from zero to a net operating profit

Using the contribution margin ratio, the impact on net income for a change in sales dollars is ______. - change in sales dollars per unit - contribution margin ratio - change in sales dollars × contribution margin ratio - change in total contribution margin × contribution margin ratio - variable expense per unit - contribution margin ratio

change in sales dollars × contribution margin ratio

According to the CVP analysis model and assuming all else remains the same, profits would be increased by a(n) ______. increase in total fixed cost decrease in unit selling price change in sales mix decrease in the unit variable cost

decrease in the unit variable cost

An increase in sales will increase net operating income by a multiple of that increase in sales. The multiple is known as the ______. margin of safety sales commissions percentage degree of operating leverage leverage leap

degree of operating leverage

The measure of how a percentage change in sales affects profits at any given level of sales is the ______. margin of safety contribution margin ratio degree of operating leverage

degree of operating leverage

When constructing a CVP graph, the vertical axis represents ______. fixed costs unit volume variable costs dollars

dollars

CVP analysis allows companies to easily identify the change in profit due to changes in ______. (Select all that apply) costs location management selling price volume

selling price, costs, volume

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. - lowering variable cost per unit to $45 would result in a contribution margin of $70 per unit - Pete's Putters is unable to make a profit

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

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 - total contribution margin will increase by $0.30 - net operating income will increase by $0.30

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

The break-even point is reached when the contribution margin is equal to ______. total variable expenses profit total sales total fixed expenses

total fixed expenses

At the break-even point ______. (Select all that apply). the company is experiencing a loss total revenue equals total cost the company is earning a profit net operating income is zero

total revenue equals total cost, net operating income is zero

Elle's Elephant Shop sells giant stuffed elephants for $55 each. Each elephant has variable costs of $10 and total fixed costs are $700. If Ellie sells 35 elephants this month, ______. total variable costs = $350 total sales = $1,925 profits = $875 total costs = $1,250

total variable costs = $350, total sales = $1,925, profits = $875

The contribution margin equals sales minus all ______ expenses. variable fixed product period

variable