Chapter 5 Accounting

When a company produces and sells multiple products ______.

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

The degree of operating leverage = ______.

contribution margin ÷ net operating income

It makes sense to perform a high-low or regression analysis if a scattergraph plot reveals ________ __________ behavior

linear cost

The amount by which sales can drop before losses are incurred is the __________ of ___________

margin of safety

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

contribution margin ÷ sales

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 ______.

7,625

At the break-even point ______.

net operating income is zero total revenue equals total cost

The term "cost structure" refers to the relative proportion of __________ and __________ costs in organization

variable, fixed

Which of the following statements is correct?

The higher the margin of safety, the lower the risk of incurring a loss.

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 ______.

$184,000 - $85,000 = $99,000

Spice sells paprika for $9.00 per bottle. Variable cost is $2.43 per bottle and Spice's annual fixed costs are $825,000. The variable expense ratio for paprika is ______.

$2.43 ÷ $9.00 or 27%

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?

$98,000 ÷ ($50 - $15) = 2,800

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 ______.

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

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 ______.

($520,000 + $320,000) ÷ $21 = 40,000

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 $

5,000

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 ______.

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

Marjorie's Mugs sold 300 mugs last year for $20 each. Variable costs were $7 per mug and total fixed costs were $1,700. Marjorie's Mugs' profit was ______.

300 × ($20 - $7) - $1,700 = $2,200.

A company sold 20,000 units of its product for $20 each. Variable cost per unit is $11. Fixed expenses total $150,000. The company's contribution margin is ______.

A company sold 20,000 units of its product for $20 each. Variable cost per unit is $11. Fixed expenses total $150,000. The company's contribution margin is ______.

Which of the following items are found above the contribution margin on a contribution margin format income statement?

Sales Variable expenses

Which of the following statements are true?

Scattergraphs are a way to diagnose cost behavior. Plotting data on a scattergraph is an important diagnostic step.

Cost behavior is considered linear whenever ______.

a straight line approximates the relationship between cost and activity

Contribution margin:

becomes profit after fixed expenses are covered.

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

decrease

An increase in sales will increase net operating income by a multiple of that increase in sales. The multiple is known as the ______.

degree of operating leverage

Estimating the fixed and variable components of a mixed cost using the ___________ approach involves a detailed analysis of what cost behavior should be.

engineering

Account analysis involves a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation.

false

Cost structure refers to the relative portion of product and period costs in an organization.

false

True or false: Without knowing the future, it is best to have a cost structure with high variable costs.

false

Total contribution margin equals ______.

fixed expenses plus net operating income

A company's current sales are $300,000 and fixed expenses total $85,000. The contribution margin ratio is 30%. The company has decided to expand production which is expected to increase sales by $70,000 and fixed expenses by $15,000. If these results occur, net operating income will ______.

increase by $6,000

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

A company with a high ratio of fixed costs:

is more likely to experience a loss when sales are down than a company with mostly variable costs. is more likely to experience greater profits when sales are up than a company with mostly variable costs.

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

ratio

The variable expense ratio is the ratio of variable expense to ______.

sales

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

sales mix

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

sales mix

The break-even point calculation is affected by:

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

The rise-over-run formula for the slope of a straight line is the basis of ______.

the high-low method

To prepare a CVP graph, lines must be drawn representing total revenue, ______

total expense, and total fixed expense

CVP analysis focuses on how profits are affected by ______.

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

When preparing a CVP graph, the horizontal axis represents:

unit volume.

The contribution margin equals sales minus all ______ expenses.

variable

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

zero

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 ______.

$450 increase

Seating Galore sells high-end desk chairs. The variable expense per chair is $85.05 and the chairs sell for $189.00 each. The variable expense ratio for Seating Galore's chairs is

45

Sweet Dreams sells pillows for $25 each. Variable costs are $15 per pillow. The company is considering improving the quality of materials which will increase variable costs to $19. The company expects the improved materials will increase sales from 1,200 to 1,500 pillows per month. The impact of this change on total contribution margin would be a(n) ________ of __$_______

decrease of 3000

The best fitting line minimizes the sum of the squared errors when using ______.

least-square regression

A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called ______.

least-squares regression

A measure of how sensitive net operating income is to a given percentage change in sales dollars is known as operating _________

leverage

Operating leverage is a measure of how sensitive ______ is to a given percentage change in sales dollars.

net operating income

When using the high-low method, the slope of the line equals the ____________ cost. per unit of activity

variable

Variable expenses ÷ Sales is the calculation for the ______ ________ ratio

variable expense

Profit = (selling price per unit × quantity sold) - ( _________ expense per unit × quantity sold) - _________ expenses

variable, fixed