AC 361 Chapter 5

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

Contribution margin ratio = ($1,452,000 - $958,320) ÷ $1,452,000 = 34%.

CVP is the acronym for

Cost Volume Profits

A simpler form of the CVP graph is called the ? graph

Profit

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

Profit equals ______.

(P × Q) - (V × Q) - fixed expenses

Net operating income equals ______.

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

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

Users can easily judge the impact on profits of changes in selling price, cost or volume when using an income statement constructed under the ______ approach.

Contribution

When constructing a CVP graph, the vertical axis represents ______.

Dollars

Simple CVP analysis can be relied on for changes in volume outside the relevant range.

False

Vivian's Violins has sales of $326,000, contribution margin of $184,000 and fixed costs total $85,000. Vivian's Violins net operating income is ______.

Net operating income = $184,000 - $85,000 = $99,000

Which of the following is needed to calculate profit?

Unit contribution margin, unit sales, and total fixed costs

The contribution margin equals sales minus ______.

all variable costs

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

assumptions

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

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

contribution margin ÷ 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

Total contribution margin equals ______.

fixed expenses plus net operating income

Fantastic Frames sells units for $15 each. Variable costs total $6 per unit, and fixed costs total $90,000. If the number of units being sold increases by 2,000, net operating income will ______.

increase $18,000

The contribution margin statement is ordinarily used by those ______.

inside the company only

The contribution margin statement is primarily used for ______.

internal decision making

If the total contribution margin is less than the total fixed expenses, a ______ occurs.

net loss

The single point where the total revenue line crosses the total expense line on the CVP graph indicates ______.

profit equals zero the break-even point

To simplify CVP calculations, it is assumed that ______ will 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

The profit graph allows users to easily identify ______.

the sales volume required to reach the break-even point the profit at any given sales volume

CM ratio is equal to 1 - ? ratio

variable expense

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

zero

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 ______.

Net operating income =30,000 × ($40 - $19) - $250,000 = $380,000

The equation used to calculate the variable expense ratio using total values is total variable expenses divided by total ______.

Sales

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

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

Contribution margin is first used to cover ? expenses. Once the break-even point has been reached, contribution margin becomes ?

Fixed, Profits

The Cutting Edge sells ice skates. Total sales are $845,000, total variable expenses are $245,050 and total fixed expenses are $302,000. The variable expense ratio is ______.

Variable expense ratio = $245,050 ÷ $845,000 or 29%.

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

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

The vertical distance between the total revenue line and the total expense line on a CVP graph represents the total ______.

profit or loss

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

selling price volume costs

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 making a decision using incremental analysis consider the ______.

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