Accounting Chapter 5 Learn Smart
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 Unit contribution margin= $90 -$35
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:
$909,677 $564,000/0.62
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
Contribution margin is first used to cover __ expenses. Once the break-even point has been reached, contribution margin becomes __.
fixed, profit
The amount by which sales can drop before losses are incurred is the __ of __.
margin, safety
Variable expenses/Sales is the calculation for the ____ ____ ratio.
variable expense
Profit= (selling price per unit x quantity sold) - (_____ expense per unit x quantity sold) - ____ expenses.
variable, fixed
Company A has a contribution margin ratio of 35%. For each dollar in sales, contribution margin will increase by:
$0.35
A company sold 20,000 units of its product at a selling price of $20. The variable cost per unit is $11. Fixed expenses total $150,000. The company's contribution margin is:
$180,000 Contribution margin = 20,000 x ($20-$11) = $180,000
Variable expense ratio is the ratio of variable expense to:
Sales
Order on contribution margin format income statement:
Sales Variable expenses Contribution margin Fixed expenses Net operating income
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 contribution margin per putter is $65. The sale of 12,000 putters results in net operating income of $380,000.
Company A has a sales of $500,000, variable costs of $350,000, and fixed costs of $150,000, Company A has:
reached the break-even point a contribution margin equal to fixed costs
Daisy's Dolls sold 30,000 dolls this year for $40 each. Each doll's variable cost was $19. If Daisy incurred $250,000 of fixed expenses, net operating income for the year is:
$380,000 Net operating income = 30,000 x ($40 x $19) - $250,000 = $380,000
To solve for net operating income at any sales volume above the break-even point requires knowledge of the:
break-even unit sales contribution margin per unit projected unit sales
The equation used to calculate the variable expense ratio using total values is the total variable expenses divided by total
sales
The contribution margin income statement allows users to easily judge the impact of a change in __ on profit
selling price volume cost
The break-even point is reached when the contribution margin is equal to:
total fixed expenses
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 Elle sells 35 elephants this month:
total sales = $1925 total sales = 35 x $55 = $1925 profits = $875 profits = 35 x ($55-$10) - $700 = $875 total variable costs = $350 total variable costs = (35 x $10) = $350
Contribution margin divided by sales is the formula for ___ ___ ___
contribution margin ratio
CVP analysis allows companies to easily identify the change in profit due to changes in
costs, volume, selling price
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 Sales = ($564,000 + $800,000)/0.62 = $2,200,000
A company's break-even point is 17,000 units. If the contribution margin is $22 per unit and 26,000 units are sold, net operating profit will be:
$198,000 Net operating income = (26,000 - 17,000) x $22 = $198,000
Terry's Trees has reached its break-even point and has calculated its contribution margin ratio to be 70%. For each $1 increase in sales:
net operating income will increase by $0.70 total contribution margin will increase by $0.70
