Managerial Ch 5
Profit equals ________.
(P x Q - V x Q) - fixed expenses
CVP analysis focuses on how profits are affected by:
- sales volume - unit variable cost - total fixed costs - selling price - mix of product sold
CVP analysis allows companies to easily identify the change in profit due to changes in:
- selling price - volume - product mix
At the break-even point:
- total revenue equals total cost - net operating income is zero
Place the following items in the correct order in which they appear on the contribution margin format income statement. - fixed expenses - net operating income - variable expenses - contribution margin - sales
1. Sales 2. Variable expenses 3. Contribution margin 4. Fixed expenses 5. Net operating income
To calculate the degree f operating leverage, divide ________ ________ by net operating income.
Blank 1: contribution Blank 2: margin
Contribution margin is first used to cover ________ expenses. Once the break-even point has been reached, contribution margin becomes __________.
Blank 1: fixed Blank 2: profit, income, OR profits
The amount by which sales can drop before losses are incurred is the ________ of ________.
Blank 1: margin Blank 2: safety
T/F? Cost structure refers to the relative portion of product and period costs in an organization.
False
Contribution margin ________.
becomes profit after fixed expenses are covered
A change in profits that occurs due to a change in sales and fixed expenses may be calculated as ________.
cm ratio x changes in sales - change in fixed expenses
The degree of operating leverage equals ________.
contribution margin divided by net operating income
The calculation of contribution margin (CM) ratio is ________.
contribution margin divided by sales
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
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
The measure of how a percentage change in sales affects profits at any given level of sales is the ________.
degree of operating leverage
When constructing a CVP graph, the vertical axis represents ________.
dollars
Total contribution margin equals ________.
fixed expenses plus net operating income
The break-even point is the level of sales at which the profit equals ________.
nothing
The contribution margin as a percentage of sales is referred to as the contribution margin or CM ________.
ratio
The variable expense ratio equals variable expenses divided by ________.
sales
The variable expense ratio is the ratio of variable expense to ________.
sales
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 is equal to ________.
total fixed expenses
When preparing a CVP graph, the horizontal axis represents ________.
unit volume
The contribution margin equals sales minus all _______ expenses.
variable
The contribution margin is equal to sales minus ________.
variable expenses
Variable expenses divided by sales is the calculation for the _________ _______ ration.
Blank 1: variable Blank 2: expense OR cost
Profit = (selling price per unit x quantity sold) - ( ________ expense per unit x quantity sold) - ________ expenses.
Blank 1: variable Blank 2: fixed
The term "cost structure" refers to the relative proportion of ________ and ________ costs in an organization.
Blank 1: variable Blank 2: fixed