Midterm 1

Profit =

(P x Q) - (V x Q) - Fixed expenses

Net operating income =

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

According to CVP analysis model and assuming all else remains the same, profits would be increased by:

a decrease in the unit variable cost

When making a decision using incremental analysis consider the ______.

change in cost resulting specifically from the decision change in sales dollars resulting specifically from the decision

The variable cost per unit using the high-low method is calculated as ______.

change in cost ÷ change in units (activity)

To calculate the degree of operating leverage, divide __________ _________ by net operating income.

contribution margin

degree of operating leverage =

contribution margin / net operating income

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

costs, selling price, and volume

On a CVP graph, the vertical axis represents

dollars

The term "cost structure" refers to the relative proportion of:

fixed and variable costs in an organization

When using the high-low method, the slope of the line equals the _________ cost per unit of activity

variable

When using the high-low method, the slope of the line equals the ___________ cost per unit of activity

variable

When using the high low method, the change in cost divided by the change in units equals ______.

variable cost per unit

Variable expenses / Sales is the calculation for:

variable expense ratio

Break-even point is the level of sales at which the profit equals:

zero

Total Contribution Margin =

fixed expenses + net operating income

A company reports the following for a sales volume of 200 units: - $100,000 in sales -$80,000 in variable cost -Break-even is 200 units - Company sells 201 units what is net profit

$100 Net Profit = (sales - variable cost) / Break-even

Cutting edge sells ice skates Total sales = $845k total variable expenses $245,050 Total fixed expenses are $302K The variable expense ratio is:

29%

- Sales revenue $189k - Total contribution margin $100,170 - Total fixed expenses $27,500 Find the contribution margin ratio (%)

53% (total contribution margin / sales revenue)

Adams, Inc. has sales of $100,000 with a contribution margin of $60,000 and net income of $20,000. Baron, Inc. has sales of $110,000 with a contribution margin of $44,000 and net income of $22,000. Which of the following statements are correct?

Baron's net income grows twice as fast as its sales. Adams has a higher degree of operating leverage than Baron.

Contribution Margin as a percentage of sales is referred to as the contribution margin or:

CM ratio

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:

Contribution margin - Fixed costs = NOI $630,000 - $250,000 = $380,000

t/f: knowledge of previous sales is necessary when using incremental analysis to evaluate change in profits

FALSE - incremental analysis only requires information about the change in sales not the previous ones

- Company sold 750 units - Contribution margin: $120/unit - Break-even point of 450 units Find Net operating income

NOI = (Units sold - Break-even Point) x Contribution Margin = (750 - 450) x 120 = 36k

Scattergraph facts:

Scattergraphs are a way to diagnose cost behavior. Plotting data on a scattergraph is an important diagnostic step.

Vivian's violins has sales of $326,000, contribution margin of $184000, and fixed costs total $85,000. Vivian's Violins net operating income is

[Contribution margin] - [Fixed costs] = Net Operating Income: $184K - $85K = $99K

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:

[Units sold] x (Selling price - Variable cost per unit): 20,000 x (20 - 11) = $180,000

Contribution Margin____

becomes profit after fixed expenses are covered

The contribution margin equals sales minus all _________ expenses

variable

assuming sales price remains constant an increase in the variable cost per unit will __________ the contribution margin per unit

decrease (sales - variable cost = contribution margin)

Sweet Dreams sells pillows for $25 each. Variable costs are $15 per pillow. The company is considering improving the quality of materials which will increase variable costs to $19. The company expects the improved materials will increase sales from 1,200 to 1,500 pillows per month. The impact of this change on total contribution margin would be a(n) __________ of $____________

decrease; $3000

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

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 company with a high ratio of fixed costs ______.

is more likely to experience a loss when sales are down than a company with mostly variable costs is more likely to experience greater profits when sales are up than a company with mostly variable costs.

The best fitting line minimizes the sum of the squared errors when using ______.

least-square regression

A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called ______.

least-squares regression

It makes sense to perform a high-low or regression analysis if a scattergraph plot reveals___________- behavior

linear cost

Operating leverage is a measure of how sensitive ______ is to a given percentage change in sales dollars.

net operating income

Elle's elephants sells elephants for $55 each Each one has a VC of $10 and total fixed costs are $700 If Elle sells 35 elephants this month what are the: profit total variable costs total sales

profit: $875 total variable costs: $350 total sales: $1,925

Starting with sales and ending with NOI, what is the order of items on the contribution margin format income statement

sales variable expenses contribution margin fixed expenses net operating income

The relative proportions in which a company's products are sold is referred to as:

sales mix

When preparing a CVP graph, the horizontal axis represents:

sales volume

the break-even point is affected by:

selling price per unit costs per unit sales mix

CVP analysis focuses on how profits are affected by

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

The rise-over-run formula for the slope of a straight line is the basis of ______.

the high-low method

The higher the margin of safety...

the lower the risk of not breaking even and incurring a loss

Break-even point is reached when the contribution margin is equal to:

total fixed expenses

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 calculation of contribution margin (CM) ratio is:

contribution margin / sales revenue

Estimating the fixed and variable components of a mixed cost using the ____ approach involves a detailed analysis of what cost behavior should be

engineering

T/F: Account analysis involves a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation.

false

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

false

True or false: The sales mix must be taken into consideration when calculating the break-even point for more than one product due to different selling prices, costs, and contribution margins among the products.

true