Chapter 9

Batch-level costs may increase or decrease

When doing CVP analysis using the ABC method:

Contribution margin per unit is $6

if selling price per unit is $10, variable cost per unit is $4 and fixed costs per unit is $1, the:

Profit-volume

A graph that depicts (operating) profit as a function of changes in volume (units sold) is referred to as what type of graph?

Shows how costs, revenues, and profits change in response to changes in volume (output)

A CPV graph:

A decision tree (or decision table)

A structured approach to uncertainty/risk analysis that incorporates managerial actions, events, and outcomes (for example, the amount of profit generated during a period), is referred to as:

"Sales basket" approach

An alternative approach to the weighted-average approach to the construction of a short-term profit-planning model for the multi-product firm is referred to as the:

60/40 = 1.5

At a given volume level, Q, total sales revenue = $100, total variabel costs = $40, and total fixed cost =$20. At this volume level, the degree of operating leverage (DOL) is:

Total contribution margin (CM) equals total fixed costs, F

At the break-even point

Break-even in sales dollars

Break-even point in units multiplied by the selling price per unit equals:

Relatively high fixed costs

By definition, a firm with high operating leverage has:

Is a model of the short-term profit structure of an organization

CVP Analysis:

Identifies risks in increasing fixed costs if volume fails; Can help a firm execute its strategy

CVP analysis

(3X2)=10 100/10=10

Fixed cost for the period is $100. Assume that a standard "basket" of products consists of 3 units of X and 2 units of Y. Both products (X and Y) have a contribution margin per unit of $2. The break-even point, in terms of number of "baskets" of product is:

60,000/(250-100)=400 X 250= $100000

Given a sales price of $250 per unit, variable cost of $100 per unit, and fixed costs of $60,000, the breakeven in dollars is

250-110=140X10 = 1400

Given a sales price of $250 per unit, variable cost of $110 per unit, and a break-even point of 800 units, the estimated profit if 810 units are sold is

Indifference point

Given the choice of two options, one with high fixed cost and low unit variable cost (high-fixed-cost option) and the other with low fixed cost and high unit variable cost (low-fixed-cost option), the sales level where managers would be equally satisfied with either option is called the what?

sales mix

If a multiproduct company cannot reasonably allocate fixed costs to each product, then a constant __________ __________ must be assumed in order to build a single CVP model for profit-planning purposes

($600 + $480)/($7.50-$3.50)= $1,080/$4.00 per unit= 270 units

If fixed cost per week is $600, and selling price per unit is $7.50, with a variable cots per unit of $3.50, the number of units that must be sold to generate a pretax profit of $480 per week is:

10-7=3 3/10=30%

If selling price per unit is $10 and variable cost per unit is $7, then:

The break-even point in dollars is $500/($2/$10)

If the fixed cost per month is $500, the selling price per unit is $10, and the variable cost per unit is $8, then:

Profit exclusive of unusual or non recurring items before tax

In CVP analysis, the term operating profit refers to:

Costs are classified (i.e., grouped) by behavior (i.e., fixed vs. variable)

In a contribution income statement:

Equal to sales above the break-even point

Margin of safety (MOS) is:

Selling price per unit

On a CVP graph, the slope of the total revenue line equals

Selling price per unit

On a CVP graph, the slope of the total revenue line equals:

A measure of risk

Operating leverage is:

The extent to which fixed costs exist in the cost structure of an organization

Operating leverage refers to:

Higher

The __________ the operating leverage, the greater the sensitivity of operating income to changes in sales volume

Contribution margin per unit

The amount by which operating profit changes for each unit change in sales is the:

First converting desired after-tax income to pretax dollar equivalents

The basic CVP model (without income taxes) can be expanded to include income tax consideration by:

Dividing fixed costs for period by the contribution margin ratio

The break-even point in dollars can be found by:

Divided by the Contribution margin per unit

The break-even point in terms of number of units (i.e., sales volume) equals fixed costs:

Divided by the contribution margin per unit

The break-even point in terms of number of units equals fixed costs:

Operating profit is zero

The break-even point is defined as the point where:

What-if analysis

The calculation of an amount given different levels of a fact that influences that amount is:

Defined at each output level, Q

The degree of operating leverage (DOL) is:

Expected values for each decision option

The end product (information) obtained from a decision table/decision tree is a set of:

Contribution

The income statement used in conjunction with CVP (cost-volume-profit) analysis is called the __________ income statement

Output level (Sales mix)

The level of short-term profitability of an organization is a function of: sales volume, selling price per unit, variable cost per unit, total fixed costs, and:

Margin of safety in units/planned sales in units

The margin of safety ration is calculated as:

Sensitivity analysis

The name for a variety of methods that examine how an amount changes in response to changes in one or more factors used to predict that amount is:

The inclusion of activity-based costs rather than solely volume-related costs

The primary difference in a CVP model that incorporates ABC data, compared to a conventional CVP profit-planning model is:

Q(p-v)-F

The profit equation depicted in a Profit-Volume (PV) graph is:

Sales mix % based on physical units

The weighted-average contribution margin for a multi-product organization is calculated by weighting the contribution margin of each individual product by the product's:

Sales volume (in units) X contribution margin per unit

Total contribution margin for a given accounting period equals:

True

True or false: CVP analysis can be used to determine the most cost-effective trade off between different types of costs

False

True or false: Facility-level costs are treated differently under CVP analysis using an activity-based costing (ABC) approach than they are under the conventional approach to CVP

False

True or false: Only firms that compete on cost leadership need CVP analysis

Increases

When CVP analysis is applied using activity-based costing and batch sized is decreased, the number of units required to break-even or achieve a desired profit:

low

When comparing two products, the product with a relatively __________ margin of safety (MOS) ratio is the riskier of the two

Is simplified because the analysis is performed at the product-group level

the construction of a profit-planning model in conjunction with value-stream accounting: