cap * 9 2023
The calculation of an amount given different levels of a fact that influences that amount is called __________ - __________ analysis.
Blank 1: what Blank 2: if
Which of the following is true regarding not-for-profit (NFP) organizations?
CVP analysis can typically be used in the organization. Reason: The exclusion of "profit" from the CVP model does not preclude its use in an NFP context. CVP analysis can be used to support planning & decision-making for NFP enterprises.
A structured approach to uncertainty/risk analysis that incorporates managerial actions, events, and outcomes (for example, the amount of profit generated during a period), is referred to a
a decision tree (or decision table)
The level of short-term profitability of an organization is a function of: sales volume, the selling price per unit, variable cost per unit, total fixed costs, and sales mix selling expenses market share market size the level of capital expenditures during the period
sales mix
The allocation of the overall break-even point for a multi-product firm, expressed in terms of sales dollars, to individual products A and B is based on the
sales mix percentage of each product, based on sales dollars (not units)
On a CVP graph, the slope of the total revenue line equals ______ per unit.
selling price
The name given to a variety of approaches that examine how a given variable of interest (e.g., profit) changes in response to changes in one or more factors used to predict that variable is
sensitivity analysis
A CVP graph ______.
shows how costs, revenues, and profits change in response to changes in volume (output)
The ______ the operating leverage, the greater the sensitivity of operating income to changes in sales volume.
higher
CVP analysis
identifies risks in increasing fixed costs if volume falls can help a firm execute its strategy
The contribution margin per unit for Products A, B, and C, respectively, are as follows: $24; $60; $180. A standard sales mix consists of 1 unit of A, 2 units of B, and 3 units of C. The weighted-average contribution margin per unit for this firm is
$114 Reason: ((1÷6) × $24) + ((2÷6) × $60) + ((3÷6) × $180) = $114
The amount of pretax profit, πB, that is the equivalent of an after-tax profit, πA, of $100 if the tax rate is 20% is
$120 Reason: $125 = $100÷(1 - 0.20)
Product A has a contribution margin per unit of $12 and Product B has a contribution margin per unit of $6. Given a sales mix of 25:75, the weighted-average contribution margin per unit is
$7.50 Reason: $12 × 25% + $6 × 75% = $7.50
The calculation of an amount given different levels of a fact that influences that amount is ______ analysis.
what-if
The amount of pretax profit, πB, that is the equivalent of an after-tax profit, πA, of $100 if the tax rate is 20% is ______. Multiple choice question. $125
125 Reason: $125 = $100÷(1 - 0.20)
If fixed costs, F, are $500 per week, selling price per unit = $7.50, and variable cost per unit = $3.50, the break-even point, in units, is
125 Reason: B/E in units = fixed costs ÷ contribution margin per unit = $500÷$4.00 per unit = 125 units
If fixed costs, F, are $500 per week, selling price per unit = $7.50, and variable cost per unit = $3.50, the break-even point, in units, is
125 Reason: B/E in units = fixed costs ÷ contribution margin per unit = $500÷$4.00 per unit = 125 units 7.5-3.5=4.0 500/4.0=125
Given a sales price of $300 per unit, variable cost of $180 per unit, and fixed costs of $150,000, the breakeven point in units is
1250 50000/300-180= 150000/120
If fixed cost per week is $600, and selling price per unit is $7.50, with a variable cost per unit of $3.50, the number of units that must be sold to generate a pretax profit of $480 per week is
270 Reason: ($600 + $480)÷($7.50 - $3.50) = $1,080÷$4.00 per unit = 270 units
The required sales volume in units, Q, needed to generate an after-tax income of $10,000, given a combined tax rate, t, of 20%, fixed costs, F, of $5,000, and a contribution margin per unit of $50 is ______ units.
350 Reason: Q = $5,000 + ($10,000÷(1 - 0.20))÷$50 per unit = 350 units
Given fixed costs, F, of $10,000, a selling price per unit, p, of $25, and variable cost per unit, v, of $10, how many units, Q, must be sold to generate a pretax profit of $50,000?
4,000 Reason: ($10,000 + $50,000)÷($25 - $10) per unit = 4,000 units
Given a sales price of $375 per unit, variable cost of $125 per unit, and fixed costs of $100,000, the breakeven point in units is
400 100000/375-125=400 Break-even point in units = Fixed costs ÷ Contribution margin per unit
CVP can be used to determine the required change in ___________ or ____________ cost, given a known change in the other cost component. (
Blank 1: fixed Blank 2: variable
The planned or actual sales above the break-even point, measured in dollars or units is referred to as the__________ of _______________
Blank 1: margin Blank 2: safety
The name for a variety of methods that examine how an amount changes in response to changes in one or more factors used to predict that amount is
Blank 1: sensitivity Blank 2: analysis
When families of products are grouped into in lean accounting, there is an opportunity to use CVP for the product group rather than for a single product or multiple products.
Blank 1: value Blank 2: streams or stream
The break-even point is defined as the point where
The break-even point is defined as the point where
CVP analysis can be used to determine the most cost-effective trade off between different types of costs.
True
The primary difference in a CVP model that incorporates ABC data, compared to a conventional CVP profit-planning model, is the inclusion of
activity-based costs (e.g., batch-level costs) rather than solely volume-related costs
The basic CVP model (without income taxes) can be expanded to include income tax considerations by
first converting desired after-tax income to pretax dollar equivalents.
Break-even point in units multiplied by the selling price per unit equals
break-even in sales dollars
Not -for-profit (NFP) organizations ______ use CVP analysis.
can
The term that refers to the proportion of each sales dollar available for the recovery of fixed costs is
contribution margin ratio Reason: cm ratio = cm per unit/selling price per unit = proportion of each sales dollar that is available for the recovery of fixed costs.
A model representing how costs and revenues change in response to changes in volume (output) is referred to as ______.
cost-volume-profit (CVP) analysis
The break-even point in terms of number of units (i.e., sales volume) equals fixed costs
divided by the contribution margin per unit Reason: The numerator represents total fixed costs to be recovered, while the denominator represents the rate at which fixed costs are being recovered, per unit sold. y=QxP
Margin of safety (MOS) is
equal to sales above the break-even point
The end product (information) obtained from a decision table/decision tree is a set of
expected values for each decision option
Operating leverage refers to the
extent to which fixed costs exist in the cost structure of an organization Reason: As such, operating leverage (similar to financial leverage) a measure of risk.
Facility-level costs are treated differently under CVP analysis using an activity-based costing (ABC) approach than they are under the conventional approach to CVP.
false Facility-level costs are treated as fixed costs under both ABC and traditional volume-based CVP
The construction of a profit-planning (i.e., CVP) model in conjunction with value-stream accounting
is simplified because the analysis is performed at the product-group level
In a conventional CVP model of profit behavior, total revenues are depicted as a
linear function of sales volume, Q
The break-even point is defined as the point where
operating profit is zero Reason: By definition, the break-even point is the volume level at which total revenue = total costs, so that operating profit at this volume level would be zero.
CVP analysis ______. Multiple choice question. cannot be used by service firms due to the nature of the cost structure in these organizations focuses on long-run pricing strategies of a firm is used solely by firms pursuing a differentiation strategy provides a means to predict the effect of sales growth on operating profit focuses on long-term profit-planning for an organization
provides a means to predict the effect of sales growth on operating profit Reason: CVP analysis provides a means to predict the effect of sales growth on operating profit.
By definition, a firm with high operating leverage has
relatively high fixed costs eason: Operating leverage refers to the extent to which there are fixed costs in an organization's cost structure.
A key assumption of conventional CVP (cost-volume-profit) analysis is that
revenue and cost functions are linear Reason: This implies a competitive market (i.e., the absence of a downward-sloping demand curve) and no changes in efficiencies/productivity as total volume changes. See text EXHIBIT 9.4.
At the break-even point total ______. Multiple choice question. revenue equals total cost contribution margin equals total sales contribution margin equals total cost revenue equals total fixed cost
revenue equals total cost
The weighted-average contribution margin for a multi-product organization is calculated by weighting the contribution margin of each individual product by that product's
sales mix % based on physical units
The break-even point in dollars equals
the break-even point in units x the selling price per unit the break-even point in units x the selling price per unit Reason: This is the correct formula to translate the break-even point in units to the break-even point expressed in sales dollars
If selling price per unit is $10 and variable cost per unit is $7, then
the contribution margin ratio = 30% Reason: Contribution margin ratio = contribution margin per unit ($3) divided by selling price per unit ($10). 3/10=0.3 *100 30%
The overall break-even point, in units, for a multi-product firm can be determined by dividing total fixed costs for the period, F, by
the weighted-average contribution margin per unit
At the break-even point
total contribution margin (CM) equals total fixed costs, F
An important component of strategic decision making for CVP analysis is an ongoing evaluation of the effectiveness of implementation of the desired alternative.
true
The required sales volume in units, Q, needed to generate a given amount of pre-tax profit, πB, is
(F + πB)÷(contribution margin per unit)
Which of the following is NOT one of the five strategic decision making steps for CVP analysis?
Choose the option that has the lowest variable costs. Reason: The correct step is to choose and implement the desired alternative which includes an analysis of total cost, quality and reliability.
The break-even point in dollars equals ______. Multiple choice question. total fixed costs divided by the contribution margin per unit the break-even point in units x the selling price per unit the break-even point in units x the contribution margin per unit total fixed costs divided by total variable costs
the break-even point in units x the selling price per unit
For a multi-product firm, the total (i.e., overall) break-even point expressed in terms of sales dollars can be determined by dividing total fixed costs, F, by the
weighted-average contribution margin ratio