smbook 6

Blissful Blankets' target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets that must be sold to achieve the target profit is ______.

$40,000 ($520,000 + $320,000) ÷ $21 = 40,000

Sales total $500,000, and fixed costs total $300,000. The contribution margin ratio is 68%. Profit = ________

$40,000 (500,000*.68)-300,000=$40,000

JVL Enterprises has set a target profit of $126,000. The company sells a single product for $50 per unit. Variable costs are $15 per unit and fixed costs total $98,000. How many units does JVL have to sell to BREAK-EVEN?

2,800 $98,000 ÷ ($50 - $15) = 2,800

Once the break-even point has been reached, net operating income will increase by the amount of the unit ______________ for each additional unit sold

contribution margin

Assuming sales price remains constant, an increase in the variable cost per unit will ______ the contribution margin per unit.

decrease

When preparing a multi-product break-even analysis, the assumption is ordinarily made that the ______ will not change.

sales mix

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 Because selling prices, costs, and contribution margins of the products differ, the sales mix is assumed to be constant when doing break-even calculations.

Contribution margin is first used to cover ___________

fixed expenses

Once the break-even point is reached, the sale of an additional unit increases contribution margin by an amount that is ______ the increase in net operating income.

equal to

True or false: Knowledge of previous sales is necessary when using incremental analysis to evaluate a change in profits.

false Incremental analysis only requires information about the change in sales, not the previous ones

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

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

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

sales mix

Using the contribution margin ratio, the impact on net income for a change in sales dollars is ______.

change in sales dollars x contribution margin ratio

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

$0.35

Tasty Tangerine is currently selling 50,000 boxes for $25 per box. Variable cost per box is $17 and fixed costs total $260,000. A plan is being considered to spend $60,000 on advertising and reduce the selling price by $2 per box. Management believes this plan will increase sales volume by 24,000 boxes. If management's predictions are correct, making these changes will cause net income for the year to decrease by ______.

$16,000 Total contribution margin would increase by $44,000 ((74,000 boxes × $6) - (50,000 boxes × $8)). Increased CM of $44,000 - $60,000 in new fixed costs = $16,000 decrease.

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 ($100 - $70 = $30)

A company currently has sales of $700,000 and a contribution margin ratio of 45%. As a result of increasing advertising expense by $8,000, the company expects to increase sales to $735,000. If this is done and these results occur, net operating income will increase by _________

$7,750 (($735,000 - $700,000) × 45%) - $8,000 = $7,750 increase

Net operating income equals:

(unit sales - unit sales to break even) × unit contribution margin.

The variable expense ratio equals variable expenses divided by ______.

sales

When making a decision using incremental analysis consider the ______ and _________.

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

Given sales of $1,452,000, variable expenses of $958,320 and fixed expenses of $354,000, the contribution margin ratio is _____.

34% ($1,452,000 - $958,320) ÷ $1,452,000 = 34%

Gifts Galore had sales revenue of $189,000. Total contribution margin was $100,170 and total fixed expenses were $27,500. The contribution margin ratio was_________

53% (100,170/189,000 = 53%)

If a company has a variable expense ratio of 35%, its CM ratio must be______

65%

A company's selling price is $90 per unit, variable cost per unit is $28 and total fixed expenses are $320,000. The number of unit sales needed to earn a target profit of $200,800 is ______.

8,400 ($320,000 + $200,800) ÷ ($90 - $28) = 8,400 units.

margin of safety

The amount by which sales can drop before losses are incurred

sales mix

The term used for the relative proportion in which a company's products are sold

A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. The BREAK-EVEN point in unit sales is ______.

Unit sales to break-even = Fixed expenses ÷ Contribution margin per unit = $305,000 ÷ $40 = 7,625

When a company sells one unit above the number required to break-even, the company's net operating income will ______.

change from zero to a net operating profit

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

The contribution margin statement is primarily used for ______.

internal decision making

The margin of safety percentage is ______.

margin of safety in dollars ÷ total budgeted (or actual) sales in dollars

Once the break-even point has been reached, contribution margin becomes ______

profit

Contribution margin becomes _________

profit after fixed expenses are covered

The contribution margin as a percentage of sales is referred to as the contribution margin or CM______

ratio

A company sells 500 sleds per month for $80. Variable costs are $41 per unit and fixed expenses are $3,500 per month. The company thinks that using a new material would increase sales by 70 units per month. If the new material increases variable costs by $4 per unit, the impact on contribution margin would be a increase by _____.

$2,450 The current contribution margin is $39 per unit ($80 - $41) or $19,500 (500 units × $39) total. The new contribution margin would be $35 per unit ($39 - $4 new cost) or $19,950 (570 units × $35), an increase of $450.

Company A produces and sells 10,000 units of its product for $10 per unit. Variable costs are $4 per unit and fixed costs total $30,000. A move to a larger facility would increase rent expense by $8,000, and allow the company to meet its demand for an additional 1,000 units. If the move is made, profits will decrease by ______.

$2000 New contribution margin = $6,000 (1,000 × ($10 - $4)) - $8,000 new cost = ($2,000) decrease in profits.

A company is currently selling 10,000 units of product for $40 per unit. The unit contribution margin is $27. The company believes that spending $50,000 on advertising will increase sales by 750 units per month and enable them to increase the selling price to $45 per unit. If this change is implemented, profits will increase ______.

$24,000 An increase in selling price of $5 will increase the contribution margin $5. The increased contribution margin of $74,000 ((10,750 × $32) - (10,000 × $27)) - the additional fixed costs of $50,000 = a profit increase of $24,000.

A company has total sales of $1,430,000. Fixed expenses are $657,000 and the contribution margin ratio is 67%. Company profit (loss) is ______.

$301,100 (67% × $1,430,000) - $657,000 = $301,100

Chrissy's Cupcakes has $832,000 in sales and $265,000 in fixed expenses. Given a contribution margin ratio of 72%, Chrissy's profit (loss) is ______.

$334,040 (72% × $832,000) - $265,000 = $334,040

Budgeted sales are $982,000, break-even sales are $932,200, and fixed expenses are $429,000. The company's budgeted margin of safety in dollars is ______.

$49,800 $982,000 - $932,200 = $49,800

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 ($10 - $6) * 10,000 - $35,000 = $5,000.

When a company produces and sells multiple products ______.

-each product most likely has different costs -a change in the sales mix will most likely change the break-even point -each product most likely has a unique contribution margin

The break-even point can be affected by ______.

-sales mix -total fixed costs -contribution margin per unit

The break-even point calculation is affected by:

-sales mix. -selling price per unit. -costs per unit.

CVP analysis focuses on how profits are affected by:

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

Terry's Trees has reached its break-even point and has a contribution margin ratio of 70%. For each $1 increase in sales ______.

-total contribution margin will increase by $0.70 -net operating income will increase by $0.70

Which of the following items are found above the contribution margin on a contribution margin format income statement? variable expenses, net operating income, sales, fixed expenses

-variable expenses -sales

CVP analysis allows companies to easily identify changes in profit due to changes in?

-volume -costs -selling price

Solving for the sales level needed to attain a target profit of $_____ is the same process as solving for the sales level needed to break-even.

0

What's the order of the contribution margin format income statement?

1.Sales 2.Variable Expenses 3.Contribution margin 4.Fixed Expenses 5.Net Operating Income

The calculation of contribution margin (CM) ratio is ______.

contribution margin/sales

Total contribution margin equals ______.

fixed expenses plus net operating income

To simplify CVP calculations, it is assumed that ______ will remain constant.

selling price

CM ratio is equal to 1 - ______________ratio.

variable expense

The contribution margin is equal to sales minus ______.

variable expenses