Managerial Accounting Ch 5

Once the break-even point has been reached, net operating income will increase by the amount of the _____ for each additional unit sold.

unit contribution margin

What is represented on the X axis of a cost-volume-profit (CVP) graph?

unit volume

What is Ralph Corporation's margin of safety in dollars?

$1,000,000 margin of safety in dollars = actual sales - break even sales actual sales = (200)(25,000) = 5,000,000 CM ratio = (sales - variable expenses) / sales (200-150) / 200 = 0.25 = 25% break even sales = fixed expenses / CM ratio 1,000,000 / 0.25 = $4,000,000 margin of safety in $ = 5,000,000 - 4,000,000 = $1,000,000

What is the amount of the break-even sales for Grace Food Company?

$1.5 million

Atlas Corporation sells 100 bicycles during a month. The contribution margin per bicycle is $200. The monthly fixed expenses are $8,000. What is the profit from the sale of 100 bicycles?

$12,000 (200)(100) = 20,000 20,000 - 8,000 = 12,000

Atlas Corporation sells 100 bicycles during a month at a price of $500 per unit. The variable expenses amount to $300 per bicycle. contribution margin = $200. How much does profit increase if it sells one more bicycle?

$200

Taylor Company has current sales of 1,000 units, at a selling price of $190 per unit, variable costs per unit of $76, and fixed expenses of $96,000. The company believes sales will increase by 300 units, if the company introduces sales commissions as an incentive for the sales staff. The change will decrease the selling price to $175 per unit, increase variable cost per unit to $100, and decrease fixed expenses by $20,000. What is the net operating income after the changes?

$21,500 needs work

Future Corporation has a single product; the product selling price is $100 and variable costs are $60. The company's fixed expenses are $10,000. What is the company's break-even point in sales dollars?

$25,000 =10,000/.40

What are the sales dollars required to attain a target profit of $120,000?

$400,000 (120,000 + 40,000) / 0.4 = 400,000

Sales: $100,000 Variable expenses: 50,000 Contribution margin: 50,000 Fixed expenses: 20,000 Net Operating income: $30,000 If sales increase by $50,000, what will be the net operating income for the company?

$55,000 (150,000)(0.50) = 75,000 75,000 - 20,000 = 55,000

The profit graph is based on the following linear equation:

Profit = Unit CM x Q - Fixed Expenses

Frank Corporation has a single product. Its selling price is $80 and the variable costs are $30. The company's fixed expenses are $5,000. What is the company's break-even point in unit sales?

100 units Unit CM = Selling price of $80 - Variable expense of $30 = $50 Unit sales to break-even = Fixed expenses of $5,000 ÷ $50 = 100 units.

What is Ralph Corporation's margin of safety in percentage?

20% margin of safety in % = margin of safety in $ / actual sales in $ 1,000,000 / 5,000,000 = 0.2 = 20%

Winter Corporation's current sales are $500,000. The contribution margin is $300,000 and the net operating income is $100,000 What is the company's degree of operating leverage?

3.00 = $300,000 / $100,000

What are the unit sales required to attain a target profit of $120,000?

4,000 units 100 x 40

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company's variable cost ratio?

40% 20 / 50 = 40%

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company's contribution margin ratio?

60% 50 - 20 = 30 30 / 50 = 60%

The current sales of Trent, Incorporated, are $400,000, with a contribution margin of $200,000. The company's degree of operating leverage is 2. If the company anticipates a 30% increase in sales, what is the percentage change in net operating income for Trent, Incorporated?

60% = (0.3)(2) = 0.6

With regards to interpretation, what are the important areas that appear on a CVP graph?

Break-even point, loss area, and profit area

Walton Corporation is currently selling 104 units of its product. The company is deciding the price that it should charge for a bulk order of 40 units. The variable cost per unit is $200. This order will not involve any additional fixed costs and the company's current sales will not be affected. The company targets a profit of $4,000 on the bulk order. What selling price per unit should the company quote for the bulk order? (Round your answer to the nearest whole dollar.)

Selling Price Per Unit = $300 Variable cost per unit $200 Profit Required Per unit 4000/40 = $100 selling price to be quoted = $300

Break-even point is the level of sales at which

total revenue equals total costs

The measure of how sensitive net operating income is to a given percentage change in volume sales is called

operating leverage

Contribution margin equals

sales minus variable cost

A shift in the sales mix from high-margin items to low-margin items can cause total profit to

decrease

What is usually plotted as a horizontal line on the CVP graph?

fixed expenses

Taylor Company has current sales of 1,000 units, which generates sales revenue of $190,000, variable costs of $76,000, and fixed expenses of $96,000. The company believes sales will increase by 300 units, if advertising increases by $20,000. What is the change in net operating income after the changes?

increase of $14,200 CM per unit = (190,000-76,000) / 1000 = $114 per unit increase in total contribution margin (114)(300) = 34,200 Less increase in fixed costs = -20,000 34,200 - 20,000 = 14,200