SB Ch 6 Connect EC

Sweet Dreams sells 15,000 pillows per year for $25 per unit. Variable cost per unit is $14. Sweet Dreams wants to improve customer satisfaction by using higher quality direct materials which will increase the variable cost per unit to $19. Fixed costs per year total $90,000. If sales increase by 5,000 units per year, what price will Sweet Dreams have to charge to earn the same profit it is earning now ($75,000 per year)?

$27.25

Given budgeted sales of $982,000, break-even sales of $932,200, and fixed expenses of $429,000, the budgeted margin of safety in dollars is ______.

$49,800

Given sales of $110,000, a contribution margin of $75,000 and net operating income of $30,000, operating leverage is ______.

2.5

Contribution margin covers

fixed cost and profit

If operating leverage is high, a small percentage increase in sales produces a __________ (higher/lower) percentage increase in net operating income than if operating leverage is low.

higher

CVP analysis can help answer the question of _____.

how net income can be increased

Managers should be willing to choose either alternative at the _________ because the profit is the same.

indifference point

The equation for the profit equation method is ______.

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

How much contribution margin is generated per dollar of sales revenue is the

contribution margin ratio

In the profit equation, total ______ is a function of the number of units sold (Q).

variable costs sales revenue

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

equal to

The excess of the budgeted (or actual) sales dollars over break-even sales is called

margin of safety

The term cost structure refers to how a company uses _____ costs versus ________ costs in its operations. (Enter only one word per blank.)

variable, fixed

Given net operating income of $50,000, contribution margin of $150,000 and sales of $300,000, the degree of operating leverage of

3

A company sells a product for $80 per unit and has a contribution margin ratio of 45%. Fixed costs total $180,000. Sales dollar to break even equals ______.

400,000

Which tool can be used to easily calculate the change in profit resulting from a change in sales price, sales volume, variable costs, or fixed costs?

CVP Analysis

Degree of operating leverage equals ______.

Contribution margin/Net operating income

Contribution margin equals sales minus ______.

all variable costs

The difference between break-even analysis and target profit analysis is the ______.

amount that profit is set to

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

Solving for the sales level needed to achieve a profit of zero is ______ analysis.

break-even

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

break-even analysis

Margin of safety in dollars is ______.

budgeted (or actual) sales minus break-even sales

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

operating leverage

According to the assumptions of CVP, ______ will not change as the volume of a product increases or decreases.

price

When constructing a CVP graph, the _______ of the line represents variable cost per unit.

slope

If sales increase by 5% and the degree of operating leverage is 4, net operating income should increase by ______.

20%

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

indifference 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

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

false

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

contribution margin ratio

Jacki's Jewels sells 10,000 necklace & earring sets per year. Fixed costs are $80,000 and variable costs are $20 per set. Jacki is planning to increase the quality of the stones, which will increase variable costs by $8 per set and increase sales by 25%. If Jacki increases the quality of the stones, what price will she need to charge to attain her target profit of $60,000 per year?

$39.20 Costs + Target Profit = ($28 x 12,500 + $80,000 + $60,000) = $490,000/12,500 = $39.20

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

(Target profit + Fixed expenses)/Unit contribution margin

Chitter-Chatter sells phones and has set a 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 ______.

1,800,000

Jump-It Corporation has a margin of safety of $272,000. The company sold 100,000 units this year. If the company sells each unit for $17, the margin of safety percentage is ______.

16%

Steel, Inc. has a margin of safety in dollars of $559,740. If actual sales were $2,946,000, Steel's margin of safety percentage is

19%

Company A has fixed costs of $564,000 and wishes to earn a profit of $800,000 this year. If Company A has a contribution margin ratio of 62%, sales dollars needed to reach the target profit equals ______.

2,200,000

Run Like the Wind sells ceiling fans. Target profit for the year is $470,000. If each fan's contribution margin is $32 and fixed costs total $222,640, the number of fans that must be sold to meet the company's goal is ______.

21,645

A company sells 15,000 units of product per month. The sales price per unit is $5.00, variable costs are $2.80 per unit and and total fixed costs equal $3,000. The contribution margin ratio is ______.

44%

Given sales of 10,000 units per month, sales price per unit of $4.00, variable costs of $1.80 per unit and and total fixed costs of $5,000, the contribution margin ratio is

55%

Given 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.

6000

Larson's Ltd. sells its product for $12.00 per unit. The contribution margin per unit is $8.00 and fixed costs are $75,000. Larson has to sell to ______ units to break even.

9375

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

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

target profit analysis

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

total amount of either profit or loss

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

total cost

At the break-even point, ______.

total revenue equals total cost profit is zero

The amount that each unit sold contributes to fixed costs and profit is ______.

unit contribution margin

Methods that can be used to model the relationship between revenues, costs, profit and volume include the _________ and _______

unit contribution margin method contribution margin ratio

The goal of break-even analysis is to find the level of sales where profit is equal to ______.

zero