ACCT 2020 Chapter 6 Smartbook Review

Contribution margin ______.

covers fixed cost and profit

The extent to which a company uses fixed costs (as opposed to variable costs) in its operations is called _____________ ______________. (Enter only one word per blank.)

cost structure

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

price

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

sales mix

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

unit contribution margin

The Greenery sells three products. Product A has a contribution margin of $10 per unit, Product B has a contribution margin of $15 per unit and Product C has a contribution margin of $12 per unit. Sales are: 25% A, 35% B and 40% C. The weighted average unit contribution for The Greenery is ______.

$12.55 (Reason: ($10 × 25% + $15 × 35% + $12 × 40%) = $12.55)

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 (Reason: Costs + Target Profit: ($19 × 20,000 + $90,000 + $75,000) = $545,000 ÷ 20,000 units = $27.25)

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

A company sells two products. Product A sells for $10.00 per unit and Product B sells for $8.00 per unit. Variable costs are $3.00 for Product A and $2.50 for Product B. If the sales mix is 70% Product A and 30% Product B, the weighted average contribution margin is ______.

$6.55 (Reason: $7.00 × 70% + $5.50 × 30% = $6.55)

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 (Reason: $98,000 ÷ ($50 - $15) = 2,800)

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

2.5 (Reason: $75,000 ÷ $30,000 = 2.5)

Given net operating income of $50,000, contribution margin of $150,000 and sales of $300,000, the degree of operating leverage of ___________. (Enter your answer as a whole number.)

3

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% (Reason: ($5.00 - $2.80) ÷ $5.00 = 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 _____________% (Enter your answer as a whole number.)

55

A company sells two products. Product A sales total $28,000 and Product B sales total $12,000. Total contribution margin is $18,000 for Product A and $9,000 for Product B. The weighted average contribution margin ratio is ____________%. (Enter your answer as a whole number rounded to one decimal place.)

67.5

Tess's Tidbits sells three different snack packs. The weighted average contribution margin is $15.00 and total fixed costs are $20,000 per month. Of her total sales, 40% are for the deluxe snack pack, 35% are standard snack packs and 25% are mini snack packs. In order to earn the target profit of $10,000 per month, Tess needs to sell ____________ deluxe snack packs each month. (Enter your answer as a whole number.)

800

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

Break-even analysis

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

True or false: CVP analysis is only used for break-even and target profit analysis.

False

True or false: Cost structure refers to how a company uses product and period costs in an organization.

False

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

False

True or false: The terms operating leverage and financial leverage refer to the same concept.

False

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

In multi-product companies, the sales mix is constant. Production volume is equal to sales volume. All costs can be classified as either fixed or variable.

The equation for the profit equation method is ______.

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

Contribution margin equals sales minus ______.

all variable costs

CVP ______.

allows managers to see how changing one variable can impact another can be used to make many different decisions can be used for "what-if" analysis

The weighted average unit contribution margin ______.

assumes that the percentage of each product sold is constant is based on the relative percentage of each unit sold is used instead of the single product contribution margin in multi-product break-even analysis

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

The amount each unit sold contributes towards fixed costs and profit is the unit ____________ ____________. (Enter only one word per blank,)

contribution margin

To calculate the degree of operating leverage, divide _______________ ______________ by net operating income. (Enter only one word per blank.)

contribution margin

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

contribution margin ratio

The weighted-average _______________ ______________ _______________ is based on the relative percentage of total sales revenue in dollars, not units. (Enter only one word per blank.)

contribution margin ratio

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

Multi-product target profit analysis ______.

depends upon the sales mix is calculated the same way as single product analysis

Decisions about the use of debt versus equity affects a company's ______________ ______________. (Enter only one word per blank.)

financial leverage

CVP analysis can help answer the question of _____.

how net income can be increased

The excess of the budgeted (or actual) sales dollars over break-even sales is called the ____________ of _____________. (Enter only one word per blank).

margin safety

The weighted average unit contribution margin is the average unit contribution margin of multiple products weighted according to ______.

percentage of units sold

How much contribution margin is generated per dollar of sales revenue is the contribution margin ______________. (Enter only one word per blank.)

ratio

When multiple products are sold, the break-even point depends on the _______________ mix. (Enter only one word per blank.)

sales

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

sales revenue variable costs

When constructing a CVP graph, the ________________ of the line represents variable cost per unit. (Enter only one word per blank)

slope

The weighted-average contribution margin ratio is calculated using the ______.

total sales mix

Methods that can be used to model the relationship between revenues, costs, profit and volume include the ________________ contribution margin method and the contribution ________________ _______________ method. (Enter only one word per blank.)

unit margin ratio

When preparing a CVP graph, the slope of the total cost line represents ______.

variable cost per unit

Contribution margin equals sales minus ______.2

variable manufacturing costs variable selling and administrative costs

CVP analysis can be useful in deciding ______.

which services to offer what price to charge for goods or services which products to offer what cost structure to implement what marketing strategy to use

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

zero

Desks by Daisy sells a student desk for $100 per unit. The variable cost per desk is $40 and Daisy's fixed costs of producing the desks equals $15,000 per month. Daisy needs to sell _____________ desks per month in order to break-even. (Enter your answer as a whole number.)

250

When constructing a CVP graph, the place where the total cost line intercepts the y-axis represents total ___________ costs. (Enter only one word per blank.)

fixed

Decisions about whether to use fixed or variable costs to run a business affects a company's ___________________ leverage. (Enter only one word per blank.)

operating

Decisions about whether to use fixed or variable costs to run a business impact a company's ______.

operating leverage