CHAPTER 6 - accounting

When a company sells one unit above the number required to break-even, the company's net operating income will ______.

change from zero to a net operating profit

Cost Volume-profit (CVP)

primary purpose it to estimate how profits are affected by the following 5 factors: 1. selling prices 2. sales volume 3. unit variable cost 4. total fixed costs 5. mix of products sold

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 $________

5000

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 ______. Multiple choice question.

$180,000 Reason: Contribution margin = 20,000 × ($20 - $11) = $180,000.

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 Blank______. Multiple choice question.

$241,000 Reason: Net operating income = $184,000 - $85,000 = $99,000

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 Blank______.

$380,000 Reason: Net operating income =30,000 × ($40 - $19) - $250,000 = $380,000

Place the following items in the correct order in which they appear on the contribution margin format income statement.

1. sales 2. variable expenses 3. CM 4. fixed expenses 5. NOI

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

Sales Variable expenses

Contribution margin:

becomes profit after fixed expenses are covered.

CVP analysis focuses on how profits are affected by ______.

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

The contribution margin is equal to sales minus ______.

variable expenses

CVP analysis allows companies to easily identify the change in profit due to changes in:

volume. selling price. costs