Chapter 6

CVP analysis is only used for break-even and target profit analysis T or F?

False

Given the fixed costs of $30,000, variable costs of $2.00 per unit, and a contribution margin of $5.00 unit, ________________ units have to be sold in order to break-even.

$30,000/$5.00= 6000 units

Given total fixed costs of $35,000 and a contribution margin ratio of 40%, $_________ must be sold in order to break-even.

$35,000/.40= $87500

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:

$982,000 - $932,000 = $49,800

A company is currently selling 10,000 units of product for $40 per unit. The unit contribution margin is $27 and current fixed costs are $174,000. The company believes that spending $30,000 on advertising will allow them to increase the selling price to $45. How many units would have to be sold of these changes are made to earn $100,000 per year?

($174,000 +$30,000 + $100,000)/ ($27 + $5) = 9,500

The formula used to calculate the sales volume needed to achieve a target profit is:

(Target profit + Fixed expenses)/ unit contribution margin

The weighted average contribution margin:

- Assumes that the percentage of each product sold is constant - Is based on the relative percentage of each unit sold - Is used instead of the single product contribution margin in multi-product break-even analysis

Which of the following are decisions in which using CVP analysis could be useful?

- deciding what marketing strategy to use - deciding which services to use - deciding which products to offer - deciding what cost structure to implement - deciding what price to charge for goods and services

What tool can be used to easily calculate the change in profit resulting from a change in sales price, sales volume, VC or FC?

CVP analysis

The profit equation method uses which of the following equations?

Profit= Total Sales Revenue - Total Variable Costs - Total Fixed Costs

If a company raises the price of a product with no change in costs, the unit contribution margin and contribution margin ratio will:

both increase

Which of the following is NOT a method used for basic CVP analysis?

break-even analysis; this is a form of CVP not a method

What covers fixed cost and profit?

contribution margin

The contribution margin stated as a percentage of sales dollars is the:

contribution margin ratio

Degree of operating leverage:

contribution margin/ net operating income

When a company increases the selling price of a product with no change in variable cost per unit or total fixed costs, the break-even point for that product will:

decrease

When constructing a CVP graph, the vertical axis represents:

dollars

The break-even point is reached when total revenue is __________ total costs.

equal to

Decisions about the use of debt versus equity affects a company's ________ ____________.

financial leverage

Setting two profit equations so that they yield the same profit allows managers to calculate the ___________ ____________.

indifference point

What is the excess of the budgeted (or actual) sales dollars over brea-even sales?

margin of safety

Decisions about whether to use fixed or variable costs to run a business affects a company's _____________ leverage.

operating

At the break-even point:

profit is zero and total revenue=total cost

The break-even point can be affected by which of the following?

sales mix, product mix, total fixed costs

________ ________ analysis is an extension of break-even analysis that allows managers to determine units or sales needed to achieve an earning's goal.

target profit

The difference between break even analysis and target profit analysis is:

the amount that profit is set to

The distance between the total revenue line and the total cost line on a cost-volume-profit graph represents:

the break-even point

An increase in sales will increase net operating income by a multiple of that increase in sales. The multiple is known as:

the degree of operating leverage

What is the amount each unit sold contributes towards fixed costs and profit?

unit contribution margin

The term cost structure refers to how a company uses _________ costs versus ________ costs in its operations.

variable; fixed

What is based on the relative percentage of total sales revenue in dollars, not units?

weighted-average contribution margin ratio