Chapter 6
CVP analysis is only used for break-even and target profit analysis T or F?
False
Given the fixed costs of $30,000, variable costs of $2.00 per unit, and a contribution margin of $5.00 unit, ________________ units have to be sold in order to break-even.
$30,000/$5.00= 6000 units
Given total fixed costs of $35,000 and a contribution margin ratio of 40%, $_________ must be sold in order to break-even.
$35,000/.40= $87500
Budgeted sales are $982,000, break-even sales are $932,200, and fixed expenses are $429,000. The company's budgeted margin of safety in dollars is:
$982,000 - $932,000 = $49,800
A company is currently selling 10,000 units of product for $40 per unit. The unit contribution margin is $27 and current fixed costs are $174,000. The company believes that spending $30,000 on advertising will allow them to increase the selling price to $45. How many units would have to be sold of these changes are made to earn $100,000 per year?
($174,000 +$30,000 + $100,000)/ ($27 + $5) = 9,500
The formula used to calculate the sales volume needed to achieve a target profit is:
(Target profit + Fixed expenses)/ unit contribution margin
The weighted average 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
Which of the following are decisions in which using CVP analysis could be useful?
- deciding what marketing strategy to use - deciding which services to use - deciding which products to offer - deciding what cost structure to implement - deciding what price to charge for goods and services
What tool can be used to easily calculate the change in profit resulting from a change in sales price, sales volume, VC or FC?
CVP analysis
The profit equation method uses which of the following equations?
Profit= Total Sales Revenue - Total Variable Costs - Total Fixed Costs
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
Which of the following is NOT a method used for basic CVP analysis?
break-even analysis; this is a form of CVP not a method
What covers fixed cost and profit?
contribution margin
The contribution margin stated as a percentage of sales dollars is the:
contribution margin ratio
Degree of operating leverage:
contribution margin/ net operating income
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
When constructing a CVP graph, the vertical axis represents:
dollars
The break-even point is reached when total revenue is __________ total costs.
equal to
Decisions about the use of debt versus equity affects a company's ________ ____________.
financial leverage
Setting two profit equations so that they yield the same profit allows managers to calculate the ___________ ____________.
indifference point
What is the excess of the budgeted (or actual) sales dollars over brea-even sales?
margin of safety
Decisions about whether to use fixed or variable costs to run a business affects a company's _____________ leverage.
operating
At the break-even point:
profit is zero and total revenue=total cost
The break-even point can be affected by which of the following?
sales mix, product mix, total fixed costs
________ ________ analysis is an extension of break-even analysis that allows managers to determine units or sales needed to achieve an earning's goal.
target profit
The difference between break even analysis and target profit analysis is:
the amount that profit is set to
The distance between the total revenue line and the total cost line on a cost-volume-profit graph represents:
the break-even point
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
What is the amount each unit sold contributes towards fixed costs and profit?
unit contribution margin
The term cost structure refers to how a company uses _________ costs versus ________ costs in its operations.
variable; fixed
What is based on the relative percentage of total sales revenue in dollars, not units?
weighted-average contribution margin ratio