Smartbook chapter 2

Order of items that appear on the contribution margin format income statement

Sales Variable expenses Contribution margin Fixed expenses Net Operating Income

If a company has sales of $100,000 a contribution margin of $40,000, and fixed expenses of $50,000 the company has a:

$10,000 net operating loss

The break-even point is the level of sales at which the profit equals

0

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

To simplify CVP calculations, which of the following is assumed to remain constant?

selling price

The contribution margin income statement allows users to easily judge the impact of a change in ______ on profit.

selling price cost volume

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

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

At the break-even point:

total revenue equals total cost. net operating income is zero.

When a company only produces a single product, the total variable cost can be calculated with the equation:

variable cost per unit multiplied by quantity of units sold

Company A sells its product for $10 per unit. If Company A has variable expenses of $5 per unit and fixed expenses of $200,000, the break-even point in units and dollars is:

40,000 units and $400,000

Shonda's Shoes sell for $95 per pair. If Shonda must sell a total of 284 pairs of shoes to break-even, and a total of 450 pairs to achieve her target profit, sales dollars needed to earn the target profit equals:

42,750

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 $

5000

True or false: CVP analysis investigates company personnel policies, business values, and performance measures for a specific company.

False

Which of the following are assumptions of cost-volume-profit analysis?

In multi product companies, the sales mix is constant. Costs are linear and can be accurately divided into variable and fixed elements.

CVP analysis is based on some _____________ that may be violated in practice, but the tool is still generally useful.

assumptions

Contribution margin:

becomes profit after fixed expenses are covered

The calculation of contribution margin (CM) ratio is:

contribution margin/sales

CVP is the acronym for

cost-volume-profit

If the total contribution margin is less than the total fixed expenses, then a ______ will occur.

net loss

Elle's Elephant Shop sells giant stuffed elephants for $55 each. Each elephant has variable costs of $10 and total fixed costs are $700. If Ellie sells 35 elephants this month:

profits = $875 total variable costs = $350 total sales = $1,925

The variable expense ratio is the ratio of variable expense to:

sales

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

total fixed expenses

Company A's product sells for $90 and has a variable cost of $35 per unit. Fixed costs total $550,000. If Company A sells 16,000 units, the contribution margin per unit is:

$55

Company A has fixed costs of $564,000 and a contribution margin of 62%. Sales dollars to break-even rounded to the nearest whole dollar equals:

$564,000/0.62 = $909,677

An income statement constructed under the ______ approach allows users to easily judge the impact on profits of changes in selling price, cost or volume.

contribution margin

The contribution margin statement is primarily used for:

internal decision making

Profit = (selling price per unit x quantity sold) - (------expense per unit x quantity sold) - -------

variable fixed

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

.35

Candle Central has $1,440 of total variable expense for a sales level of 600 units and $2,160 of total variable expense for a sales level of 900 units. If Candle Central sells 500 units:

the variable cost per unit is $2.40 total variable cost is $1,200

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 $

30

Blissful Blankets' target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets Blissful Blankets need to sell in order to achieve its target profit is:

40,000

Variable expenses/Sales is the calculation for the

variable expense ratio

The contribution margin is equal to sales minus:

variable expenses

CVP analysis focuses on how profits are affected by:

Selling price mix of products sold sales volume total fixed costs unit variable costs