CHAPTER 9 LESSON

The calculation of an amount given different levels of a fact that influences that amount is called

Blank 1: what Blank 2: if

Which of the following is NOT one of the five strategic decision making steps for CVP analysis?

Choose the option that has the lowest variable costs.

A structured approach to uncertainty/risk analysis that incorporates managerial actions, events, and outcomes (for example, the amount of profit generated during a period), is referred to as ______.

a decision tree (or decision table)

The break-even point in terms of number of units (i.e., sales volume) equals fixed costs ______.

divided by the contribution margin per unit

Margin of safety (MOS) is ______.

equal to sales above the break-even point

The end product (information) obtained from a decision table/decision tree is a set of ______.

expected values for each decision option

Operating leverage refers to the ______.

extent to which fixed costs exist in the cost structure of an organization

The basic CVP model (without income taxes) can be expanded to include income tax considerations by ______.

first converting desired after-tax income to pretax dollar equivalents.

The ______ the operating leverage, the greater the sensitivity of operating income to changes in sales volume.

higher

The break-even point is defined as the point where ______.

operating profit is zero

CVP analysis ______.

provides a means to predict the effect of sales growth on operating profit

At the break-even point total ______.

revenue equals total cost

The level of short-term profitability of an organization is a function of: sales volume, selling price per unit, variable cost per unit, total fixed costs, and ______.

sales mix

On a CVP graph, the slope of the total revenue line equals ______ per unit.

selling price

The name given to a variety of approaches that examine how a given variable of interest (e.g., profit) changes in response to changes in one or more factors used to predict that variable is ______.

sensitivity analysis

Cost-volume-profit analysis is best described as a ______.

short-term profit-planning tool

A CVP graph ______

shows how costs, revenues, and profits change in response to changes in volume (output)

The calculation of an amount given different levels of a fact that influences that amount is ______ analysis.

what-if

CVP analysis ______.

can help a firm execute its strategy identifies risks in increasing fixed costs if volume falls

The term that refers to the proportion of each sales dollar available for the recovery of fixed costs is ______.

contribution margin ratio

A model representing how costs and revenues change in response to changes in volume (output) is referred to as ______.

cost-volume-profit (CVP) analysis

Assume a selling price per unit of $10, and a variable cost per unit of $6. If sales increase by $4,000, what is the increase in operating profit?

$1,600 Reason: The contribution margin ratio is 40% ($10 - $6) ÷ $10. If sales increase by $4,000, profit increases by $1,600 ($4,000 × 40%).

The amount of pretax profit, πB, that is the equivalent of an after-tax profit, πA, of $100 if the tax rate is 20% is ______.

$125 Reason: $125 = $100÷(1 - 0.20)

The required sales volume in units, Q, needed to generate a given amount of pre-tax profit, πB, is ______.

(F + πB)÷(contribution margin per unit)

The required sales volume in units, Q, to generate a targeted after-tax profit, πA, given an income tax rate, t, is Q = ______.

(fixed costs + [πA/(1 - t)])÷contribution margin per unit

If fixed costs, F, are $500 per week, selling price per unit = $7.50, and variable cost per unit = $3.50, the break-even point, in units, is ______.

125 Reason: B/E in units = fixed costs ÷ contribution margin per unit = $500÷$4.00 per unit = 125 units

If fixed cost per week is $600, and selling price per unit is $7.50, with a variable cost per unit of $3.50, the number of units that must be sold to generate a pretax profit of $480 per week is ______.

270

The required sales volume in units, Q, needed to generate an after-tax income of $10,000, given a combined tax rate, t, of 20%, fixed costs, F, of $5,000, and a contribution margin per unit of $50 is ______ units.

350 Reason: Q = $5,000 + ($10,000÷(1 - 0.20))÷$50 per unit = 350 units

Given fixed costs, F, of $10,000, a selling price per unit, p, of $25, and variable cost per unit, v, of $10, how many units, Q, must be sold to generate a pretax profit of $50,000?

4,000 Reason: ($10,000 + $50,000)÷($25 - $10) per unit = 4,000 units

Given a sales price of $375 per unit, variable cost of $125 per unit, and fixed costs of $100,000, the breakeven point in units is

400

Given a sales price of $300 per unit, variable cost of $180 per unit, and fixed costs of $150,000, the breakeven point in units is

Blank 1: 1,250

Given a sales price of $250 per unit, variable cost of $100 per unit, and fixed costs of $60,000, the breakeven in dollars is $

Blank 1: 100,000

CVP can be used to determine the required change in _____ OR ______ cost, given a known change in the other cost component

Blank 1: fixed Blank 2: variable

CVP can be used to determine the required change in ______ or ______ cost, given a known change in the other cost component.

Blank 1: fixed Blank 2: variable

The planned or actual sales above the break-even point, measured in dollars or units is referred to as the ______ of ______.

Blank 1: margin Blank 2: safety

The name for a variety of methods that examine how an amount changes in response to changes in one or more factors used to predict that amount is

Blank 1: sensitivity Blank 2: analysis

True or false: Facility-level costs are treated differently under CVP analysis using an activity-based costing (ABC) approach than they are under the conventional approach to CVP.

FALSE

True or false: An important component of strategic decision making for CVP analysis is an ongoing evaluation of the effectiveness of implementation of the desired alternative.

TRUE

True or false: CVP analysis can be used to determine the most cost-effective trade off between different types of costs.

TRUE

The primary difference in a CVP model that incorporates ABC data, compared to a conventional CVP profit-planning model, is the inclusion of ______.

activity-based costs (e.g., batch-level costs) rather than solely volume-related costs

The break-even point in dollars equals ______.

the break-even point in units x the selling price per unit

If selling price per unit is $10 and variable cost per unit is $7, then ______.

the contribution margin ratio = 30%

At the break-even point ______.

total contribution margin (CM) equals total fixed costs, F