Chapter 6. Cost-Volume-Profit Relationships

Company A has a contribution margin ratio of 35%. For each dollar in sales, contribution margin will increase by _____

$0.35

Chitter-Chatter sells phones and has set a target profit of $975,000. The contribution margin ratio is 65%, and fixed costs are $195,000. Sales dollars needed to earn the target profit total: _____

$1,800,000 ((975,000 + 195,000) / 0.65)

Given a sales price of $100, variable costs of $70 and a break-even point of 500 units, net operating profit for sale of 501 units will be

$30 ( 100 - 70)

Contribution margin ratio is equal to _____ divided by ______

contribution margin / sales

When preparing a multi-product break-even analysis, the assumption is ordinarily made that the _____ will not change.

sales mix

High-low or least squares regression analysis should only be done if a(n) ____ plot depicts linear cost behavior.

scatter

Adam's Sports Store has a contribution margin ratio of 55% and has already passed the break-even point for the year. If Adam's generates additional sales of $250,000 by the end of the year, net operating income for the year will increase by _____

$137,500 ($250,000 x 55% = $137,500)

Lance, Inc. has sales of 9,000 units. The contribution margin per unit is $32 and fixed costs total $120,000. Lance's profit is ____

$168,000 ((9,000 x 32) - 120,000)

Chrissy's Cupcakes has $832,000 in sales and $265,000 in fixed expenses. Given a contribution margin ratio of 72%, CHrissy's profit (loss) is ______

$334,040 (72% x $832,000 - $265,000 = $334,040)

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 (10-6) x 10,000 - 35,000

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% (85.05 / 189)

True or false: Knowledge of previous sales is necessary when using incremental analysis to evaluate a change in profits.

False

True or false: The sales mix must be taken into consideration when calculating the break-even point for more than one product due to different prices, costs, and contribution margins among the products

True

The contribution margin equals sales minus _______

all variable costs

To estimate the effect on profits for a planned increase in sales, multiply the increase in units sold by the unit ______

contribution margin

If the total contribution margin is less than the total fixed expenses, a ____ occurs

net loss

The equation that should be used in setting a target selling price for a special order bulk sale that does not affect a company's normal sales is: selling price per unit =

variable cost per unit + desired profit per unit

Given sales of $1,452,000, variable expenses of $958,320 and fixed expenses of $354,0000, the contribution margin ratio is ______

34% ((1,452,000 - 958,320) / 1,452,000 = 34%)

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

zero

Variable expenses / Sales is the calculation for the _______ ratio

variable expense