Chapter 6

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

$0.35

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 $________.

(10-6) x 10,000 - 35,000 = 5000

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 _________

(750-450) x 120 = 36,000

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 $___________.

(9000x32)-120,000 = 168,000

Chitter-Chatter sells phones and has a set 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:

(975000/195000) / 0.65

Profit equals:

(PxQ) - (VxQ) - fixed expenses

Net operating income equals

(unit sales - unit sales to break even) x unit contribution margin

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

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

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 _________ crates.

9000

Contribution margin is first used to cover ________ expenses. Once the break-even point has been reached, contribution margin becomes ______.

fixed; profit

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 _________ analysis.

incremental

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 of safety

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

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

The variable expense ratio is the ratio of variable expense to

sales

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

sales mix

High-low or least squares regression analysis should only be done if a _____ plot depicts linear cost behavior.

scattergraph

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

selling price

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

total expense, and total fixed expense

The break-even point is reached when the contribution margin equals _________.

total fixed expenses

Using the high-low method, the fixed cost is calculated _______________

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

In the equation, Y=a+bX, b represents the:

variable cost per unit of activity and slope of the line

Variable expenses divided by sales is the calculation for the ____ ____ ratio.

variable expense

CVP analysis allows companies to easily identify the change in profit due to changes in ______ .

volume, costs, selling price

In a least-squares regression line, the intercept (a) of the line represent the total ___________ cost.

fixed

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 $_______.

100-70 = $30

Place the following items in the correct order in which they appear on the contribution margin format income statement.

Sales, Variable expenses, Contribution margin, Fixed expenses, Net operating income

Margin of safety in dollars is:

budgeted or actual sales - break-even sales

The calculation of contribution margin (CM) ratio is ______

contribution margin / sales

The degree of operating leverage =

contribution margin divided by net operating income

CVP is an 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

The break-even point calculation is affected by ________.

costs per unit; sales mix; selling price per unit

Once the break-even point has been reached, the sale of an additional unit will lead to an increase in contribution margin that is ____ the increase in net operating income.

equal to