Chapter 5 AP

Yard Beautiful Enterprises produces lawn mowers. The total cost for the month of June is $201,780. During June, Yard Beautiful manufactured 580 lawn mowers. If the variable cost for one lawn mower is $206, what is the fixed cost for June? $82,300 $59,345 $200,994 $201,780

. Fixed cost = Total cost - (Variable cost per unit x Number of units) = $201,780 - ($206 x 580) = $82,300.

When a firm plots its sales volume and total revenue on a CVP graph, the resulting point falls above the fixed-cost line, to the right of the total-cost line, and to the left of the sales line. This tells us that the firm is making a profit. breaking even. losing money. covering its fixed costs but not its variable costs.

losing money.

What is represented by the difference between current sales and break-even sales? fixed costs breakeven points variable costs margin of safety

margin of safety

You are comparing a firm's CVP graph for two consecutive years. In Year A, the firm's sales volume and total revenue resulted in a graph point that fell above the fixed-cost line, to the right of the sales line, and to the left of the total-cost line. In Year B, the firm's sales volume and total revenue resulted in a point that fell above the fixed-cost line and at the intersection of the total-cost and sales lines. What do these graph results indicate? The firm's financial performance was better in Year B than in Year A. The firm was more profitable in Year A than in Year B. The firm turned a profit in both Year A and Year B. The firm failed to break-even in either Year A or Year B.

net income in Year A was higher than in Year B.

Marissa creates fruit baskets to sell to a gift shop. Marissa charges the gift shop $12 for a medium-sized fruit basket. However, it only costs her $4.50 to purchase the fruit, basket, and other supplies. Marissa also has an assistant that she pays $1,400 per month, and Marissa's salary is $2,500 per month. What is Marissa's contribution margin per basket? $9.50 $7.50 $4.50 $12.00

(Unit selling price)12-(unit variable price)4.50=7.50

If a product's selling price is $110 per unit, the variable cost is $45 per unit and fixed costs are $3,000 per month, then the margin of safety in sales dollars is ________, when 125 units are sold in one month. (In your calculations, round to the next whole number.) $8,580 $4,025 $2,775 $2,950

110-45=65 Break-Even Point in Sales Units= Fixed Costs / Unit CM 3000/65=46.15= 47 Margin of Safety in Dollars = Actual or Budgeted Sales - B/E in Dollars 125-47=78 units 78*$110 =8,580

Verde, Inc. has fixed costs of $3,120,000 and the unit contribution margin is 60% of the $325 unit selling price. What is Verde's break-even point? 9,600 units 16,000 units 24,000 units 6,000 units

16,000 units $3,120,000 ÷ ($325 x .60) = 16,000 units.

Pinnacle Manufacturing sells satellite dishes for $275 each. The firm has fixed costs of $300,000 and variable costs per unit of $90. In order to break-even, Pinnacle must sell ________ satellite dishes. 1,091 3,334 1,622 822

275-90=185 300,000/185= 1622

Peak Industries sells treadmills for $850 each. The firm has variable costs per unit of $385 and total fixed costs of $225,000. What is Peak's break-even point in units? 484 treadmills 585 treadmills 183 treadmills 265 treadmills

484 treadmills

Which of the following is an example of a fixed cost? A utility cost that varies directly with increases and decreases in production levels. A marketing cost that is unchanged over a certain activity level but increases once that level is exceeded. A supervision cost that is unchanged by the number of hours worked or the amount of output produced. A material cost that varies inversely with increases and decreases in production levels.

A supervision cost that is unchanged by the number of hours worked or the amount of output produced.

How is the margin of safety ratio computed? Actual (expected) sales in units/Margin of safety in units Margin of safety in units/Actual (expected) sales in units Margin of safety in dollars/Actual (expected) sales Actual (expected) sales/Margin of safety in dollars

Actual (expected) sales/Margin of safety in dollars

Pecan Industries has fixed costs of $2,304,000 and its variable costs are $3,008,000 in total and 55% of the $16 unit selling price. What is Pecan's break-even point in units? 261,819 320,000 417,778 341,818

BE= Unit contribution margin / Unit selling price $2,304,000 ÷ ($16 x .45) = 320,000 units

Picture frames selling at $45 each have a variable cost is $15 each. The fixed costs of operating the shop are $7,500 per month. Given this data, the break-even point in number of units is 475. 250. 650. 500.

BE= fixed costs/ cm per unit (unit sp- unit vc) 7500/ (45-15)

What is the purpose of the contribution margin ratio? Its purpose is to measure the relationship between the variable expenses and the contribution margin. Its purpose is to measure the relationship between contribution margin and gross profit. Its purpose is to measure the relationship between the profit ratio and the gross margin ratio. Its purpose is to measure the relationship between contribution margin and sales revenue.

Its purpose is to measure the relationship between contribution margin and sales revenue.

Which is a version of the profit equation that includes contribution margin per unit? Net income = (Contribution margin per unit + variable cost per unit) - Fixed expenses Net income = (Contribution margin per unit x variable cost per unit) - Fixed expenses Net income = (Contribution margin per unit x fixed cost per unit) - Variable expenses Net income = (Contribution margin per unit x number of units sold) - Fixed expenses

Net income = (Contribution margin per unit x number of units sold) - Fixed expenses

Which statement describes the contribution margin? The revenue that remains to cover variable expenses and provide a profit. The revenue that remains to cover mixed costs and provide a profit. The revenue that remains to cover variable costs and mixed costs. The revenue that remains to cover fixed expenses and provide a profit.

The revenue that remains to cover fixed expenses and provide a profit.

The Fitzhugh Corporation saw a 10% decrease in activity levels over the fourth quarter. You have been asked what other changes the company should expect because of this decrease. What will you report? A 10% increase in variable costs. A 10% decrease in variable costs. A 10% increase in fixed costs. A 10% decrease in fixed costs.

The total variable costs change in proportion to changes in the levels of activity. If activity levels have decreased by 10%, variable costs will also decrease by 10%.

Describe how you would calculate the sales dollars required to meet a target net income. Total fixed costs minus target net income divided by contribution margin ratio Total fixed costs plus target net income divided by contribution margin per unit Total fixed costs plus target net income divided by contribution margin ratio Total fixed costs minus target net income divided by contribution margin per unit

Total fixed costs plus target net income divided by contribution margin ratio

The tool used to measure the relationship of contribution margin to sales revenues is the profit margin ratio. sales to contribution margin ratio. revenue margin ratio. contribution margin ratio.

contribution margin ratio.

The cost of utilities would most likely be a ________ cost.

mixed.

In a break-even graph, the fixed cost line has a slope equal to fixed cost per unit. has a slope equal to sales price per unit. has a slope equal to variable cost per unit. remains constant across all sales volumes.

remains constant across all sales volumes

On a CVP graph, the horizontal axis is used to record sales volume. total revenues. fixed costs. total costs.

sales volume. The horizontal axis is used to record sales whereas the vertical axis is for total revenue and total costs

Tiffany owns a bookstore and wants to determine the fixed and variable costs associated with selling do-it-yourself books. She made a graph with the number of books sold on the x-axis and the costs associated with selling the books on the y-axis. Tiffany fitted a line to her plot and made special note of the where the line crossed the y-axis. What will this tell her? The value of her variable costs. the value of her fixed costs. The rate at which variable costs increase. How quickly books are sold.

the value of her fixed costs.

Another way to state the target profit formula is to set the units required to meet target net income equal to total fixed cost plus target net income divided by contribution margin per unit. total variable cost plus total fixed cost divided by contribution margin per unit. total variable cost minus total fixed cost divided by contribution margin per unit. total fixed cost minus total variable cost divided by contribution margin per unit.

total fixed cost plus target net income divided by contribution margin per unit.

CheckOut Tech Inc. sells cash registers for $1,200 each. If the firm's total fixed costs are $273,000 and its variable costs are $420 per unit, then which of the following statements is accurate? CheckOut Tech's unit contribution margin is 35% and its break-even point in units is 565. CheckOut Tech's unit contribution margin is 25% and its break-even point in units is 790. CheckOut Tech's unit contribution margin is 74% and its break-even point in units is 267. CheckOut Tech's unit contribution margin is 65% and its break-even point in units is 350.

Contribution Margin Per Unit = unit selling price - unit variable costs 1200-420=780 CM ratio= unit cm / unit selling price 780/1200= 0.65 ===> 65% BE = fixed cost/ CM per unit 273,000/780=350 units

Outdoor Gourmet Inc. sells gas grills for $275 each. The contribution margin ratio is 40%. If Outdoor Gourmet needs to sell 12,000 units to break-even, then the firm's fixed costs are $1,980,000. $1,320,000. $2,240,000. $3,300,000.

Contribution Margin per unit=price per unit x CM ratio Contribution margin ratio: $275 x 40% = $110 BE point in sales dollars = fixed cost/ cm ratio BE point in sales dollars x cm ratio= fixed costs $110 x 12,000 = $1,320,000.

Major E. has just opened a cooking school focusing on basic meals for new cooks. Each student pays $15 per class and receives all the ingredients necessary to prepare dinner for two using the recipes demonstrated in the class. Major's cost to provide the ingredients is $6.00 per student. To give his students hands-on help, Major employs two assistants for each class and pays each of them $1,200 per month. Major's monthly salary is $1,800. The depreciation on equipment is $1,000 per month and utilities and insurance are $240 per month. What is Major's contribution margin ratio? 40% 150% 60% 67%

Contribution margin per unit = Sales price per unit - Variable cost per unit = $15 - $6 = $9. Contribution margin ratio = Contribution margin per unit ÷ Sales revenue per unit = $9 ÷ $15 = 60%.

Strobeck Quads sells 75 used four wheelers each month for $300 each. The variable cost per unit is $200, and Quad's fixed costs are $4,200 per month. What is the contribution margin ratio? 50.0% 20.0% 66.47% 33.3%

Contribution margin per unit = Sales price per unit - Variable cost per unit = $300 - $200 = $100. Contribution margin ratio = Contribution margin per unit ÷ Sales price per unit = $100 ÷ $300 = 33.3%.

The contribution margin ratio for Cuts Incorporated hair salon is 15%. For each $1.00 of sales, how much is generated in contribution margin? $1.00 $15.00 $150.00 $0.15

$0.15 15%*1.00=0.15

If a firm has a target to break-even and fixed annual costs of $80,000 and a contribution margin ratio of 40%, what are the dollar sales required to break-even? $120,000 $200,000 $80,000 $32,000

$200,000 BE= fixed cost/ cm ratio 40%==> 0.40 80,000/0.40=200,000

A firm would require dollar sales of ________ if it has a contribution margin ratio of 30 percent, a target profit of breaking even, and fixed annual costs of $120,000. $84,000 $120,000 $400,000 $36,000

$400,000 BE= fixed cost/ cm ratio 120,000/0.30= $400,000

Lamar, Inc., produces snow blowers. The total cost for the month of November is $104,000. During November, Lamar manufactured 325 snow blowers. If the variable cost for one snow blower is $184, what is the fixed cost for November? $104,000 $98,300 $59,800 $44,200

$44,200 Fixed cost as: Total cost - (Variable cost per unit x Number of units) = $104,000 - ($184 x 325) = $44,200.

Duck Manufacturing sells rubber rain boots for $52 per pair. If Duck's total fixed costs are $360,000 and the firm must sell 18,000 pairs of boots to break even, then what is the contribution margin ratio? Round your answer to the nearest tenth. 34.0% 38.5% 42.5% 26.0%

38.5% Fixed Cost= Total Cost-(Variable cost per unit * number of units) 360,000=936,000-(18,000x) 18,000x+360,000=936,000 18,000x=576,000 x=32 variable unit price = $32 CM per unit = unit selling price -unit variable 52-32=20 CM ratio= unit cm/ unit selling price 20/52=0.3846= 0.385= 38.5%

In November, Tim's Toys, Inc., had direct materials costs of $60,000, direct labor costs of $40,000, manufacturing overhead costs of $64,000, and fixed costs of $152,000. If Tim's contribution margin is $200 per unit, what is the company's break-even point? 820 units $1,520,000 $1,640,000 760 units

760 units fixed cost/ cm per unit 152,000/200=760 units

The assumptions underlying CVP analysis include Costs can be classified accurately as either variable or fixed. All units produced are sold. 2 only Both 1 and 2 1 only Neither 1 nor 2

Both 1 and 2

BrewCo sells coffeemakers for $120 each. The firm has variable costs per unit of $65 and total fixed costs of $330,000. In comparison, Java Inc. sells its coffeemakers for $135 each, has variable costs per unit of $70, and total fixed costs of $390,000. Based on these figures, We cannot make any conclusions about either firm's break-even point. BrewCo has a higher break-even point than Java Inc. in terms of units. Java Inc. has a higher break-even point than BrewCo in terms of units. BrewCo and Java Inc. have the same break-even point in units.

BrewCo and Java Inc. have the same break-even point in units. BE= fixed costs/ cm per unit (unit sp- unit vc) BE= 330,000/(120-65)=6,000 BE= 390,000/(135-70)=6,000

Heidi C. sells golf putters specifically designed for petite women. The company's accountant prepared the following income statement for the company's most recent quarter. Sales Revenue. $525,000 Cost of Goods Sold. $180,000 Variable Selling Expense 27,000 Variable General and Administrative Expenses18,750 Total Variable Expenses. 225,750 Contribution Margin. 299,250 Fixed Selling Expenses 51,000 Fixed General and Administrative Expenses96,000 Total Fixed Expenses. 147,000 Net Income. $152,250 What is the company's contribution margin ratio if each putter sells for $105? 29% 57% 28% 43%

Number of units sold = $525,000 ÷ $105 = 5,000. Contribution margin per unit = $299,250 ÷ 5,000 = $59.85. Contribution margin ratio = $59.85 ÷ $105 = 57%.

Last month, Sprockets, Inc., manufactured 12,000 widgets. The firm's total cost for making the widgets was $240,000. Of that amount, $60,000 was due to fixed costs, and the rest was due to variable costs. Next month, Sprockets expects to manufacture 15,000 widgets. Assuming the firm's total fixed costs and variable costs per unit remain the same, which of the following statements is accurate? Sprockets' fixed costs will remain at $5 per widget, but its total manufacturing costs will increase to $285,000. Sprockets' fixed costs will drop to $4 per widget, but its total manufacturing costs will increase to $285,000. Sprockets' fixed costs will drop to $3 per widget, but its total manufacturing costs will remain constant at $240,000. Sprockets' fixed costs will drop to $3 per widget, but its total manufacturing costs will increase to $360,000.

Sprockets' fixed costs will drop to $4 per widget, but its total manufacturing costs will increase to $285,000. $60,000/12,000 = $5 per widget. total variable costs were $240,000 - $60,000 = $180,000, which equates to $180,000/12,000 = $15 per widget. $60,000/15,000 = $4 per widget. Meanwhile, the firm's total variable costs will increase to 15,000 x $15 = $225,000. Thus, the firm's total costs for the month will be $225,000 + $60,000 = $285,000.

You are comparing a firm's CVP graph for two consecutive years. In Year 1, the firm's sales volume and total revenue resulted in a graph point that fell above the fixed-cost line, to the right of the total-cost line, and to the left of the sales line. In Year 2, the firm's sales volume and total revenue resulted in a point that fell above the fixed-cost line, to the right of the sales line, and to the left of the total-cost line. These graph results suggest that the firm's financial performance was better in Year 2 than in Year 1. firm failed to break even in either Year 1 or Year 2. firm's financial performance was better in Year 1 than in Year 2. firm turned a profit in both Year 1 and Year 2.

firm's financial performance was better in Year 2 than in Year 1.

You have found an office suite for your new business. Unfortunately, you have to lease all 8 offices even though you only need 2 offices. You are considering asking some of your friends who are also opening new businesses to share the cost with you. The relationship between the number of businesses, the total cost, and the cost per business is: # of Businesses Total Cost Cost Per Business 1. $3,000. $3,000 2 3,000 1,500 3. 3,000. 1,000 4. 3,000. 750 The office rent is an example of which type of cost? variable fixed step mixed

fixed

Demonstrate the shortcut formula necessary to calculate sales dollars required to meet a target net income of $1,700 if the company has a sales price of $125, variable cost of $75, and fixed costs of $2,300 per month. ($1,700 + $2,300) ÷ .40 ($1,700 + $2,300) ÷ $50 ($1,700 + $2,300) ÷ 0.6 ($1,700 + $2,300) ÷ 75

target net income = (Total fixed costs + Target net income) ÷ Contribution margin ratio. Contribution margin ratio = (Sales price per unit - Variable cost per unit) ÷ Sales price per unit (125-75)/125= .4. ($1,700+$2,300) / 0.4.

At the break-even point, the total contribution margin equals total fixed costs. total costs. net income. total variable costs.

total fixed costs.