SB ch 6

The break-even point is reached when total revenue is Blank______ total costs.

equal to

The weighted average unit contribution margin is the average unit contribution margin of multiple products weighted according to Blank______.

percentage of units sold

The goal of break-even analysis is to find the level of sales where profit is equal to Blank______.

zero

When constructing a CVP graph, the place where the total cost line intercepts the y-axis represents total________ costs.

Fixed

At the break-even point, Blank______.

profit is zero total revenue equals total cost

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

sales mix

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

sales mix

Which of the following are assumptions of cost volume profit analysis?

In multi-product companies, the sales mix is constant. All costs can be classified as either fixed or variable. Production volume is equal to sales volume.

According to the assumptions of CVP, Blank______ will not change as the volume of a product increases or decreases

price

According to the assumptions of CVP, Blank______ will not change as the volume of a product increases or decreases.

price

The contribution margin stated as a percentage of sales dollars is the Blank______.

contribution margin ratio

Given net operating income of $50,000, contribution margin of $150,000 and sales of $300,000, the degree of operating leverage of _____________.

contribution margin/net operating income=150,000/50,000=3

Contribution margin Blank______.

covers fixed cost and profit

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 Reason: An increase in selling price increases contribution margin and decreases the break-even point.

Cakes by Jacki has $144,000 of fixed costs per year. The contribution margin ratio is 59%. The sales dollars to break-even rounded to the nearest dollar equals Blank______.

$244,068 Reason: $144,000 ÷ 0.59 = $244,068

Given budgeted sales of $982,000, break-even sales of $932,200, and fixed expenses of $429,000, the budgeted margin of safety in dollars is Blank______.

$49,800 Reason: $982,000 - $932,200 = $49,800.

Given sales of $110,000, a contribution margin of $75,000 and net operating income of $30,000, operating leverage is Blank______.

$75,000 ÷ $30,000 = 2.5

Degree of operating leverage equals ______.

Contribution margin ÷ Net operating income

Contribution margin equals sales minus Blank______.

all variable costs

The difference between break-even analysis and target profit analysis is the Blank______.

amount that profit is set to

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

If a company raises the price of a product with no change in costs, the unit contribution margin and contribution margin ratio will Blank______.

both increase Reason: An increase in selling price increases contribution margin.

CVP ______.

can be used for "what-if" analysis allows managers to see how changing one variable can impact another can be used to make many different decisions

The weighted average unit contribution margin ______.

is used instead of the single product contribution margin in multi-product break-even analysis assumes that the percentage of each product sold is constant is based on the relative percentage of each unit sold

It fixed costs are zero, the degree of operating level will be Blank______.

one Reason: If fixed costs are zero, the degree of operating leverage (DOL) will be exactly one, meaning there is a one-to-one relationship between contribution margin and net income.

The weighted-average contribution margin ratio is calculated using the ______.

total sales mix

The amount that each unit sold contributes to fixed costs and profit is Blank______.

unit contribution margin

In the profit equation, total Blank______ is a function of the number of units sold (Q).

variable costs sales revenue

The Greenery sells three products with a weighted-average contribution margin ratio of 51.5%. Given total fixed costs of $42,830 and a target profit of $20,000 per month, target sales equals $____________ per month.

Blank 1: 122,000 or 122000

Given 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.

Blank 1: 6000 or 6,000 BEU=FC/CMu

A company has fixed costs of $25,000 and a weighted average unit contribution margin of $25. Of the sales, 65% are Product XYZ and 35% are Product TDW. In order to break even the company must sell ____________units of Product XYZ and__________ units of Product TDW.

Blank 1: 650 Blank 2: 350

A company sells two products. Product A sales total $28,000 and Product B sales total $12,000. Total contribution margin is $18,000 for Product A and $9,000 for Product B. The weighted average contribution margin ratio is ____________%.

Blank 1: 67.5

Seth's Speakers had actual sales of $1,630,000. If break-even sales equals $935,000, Seth's margin of safety in dollars is $ (AS-BES)=MOS

Blank 1: 695,000 or 695000

A company sells two products. Product A sells for $10.00 per unit and Product B sells for $8.00 per unit. Variable costs are $3.00 for Product A and $2.50 for Product B. If the sales mix is 70% Product A and 30% Product B, the weighted average contribution margin is ______.

$7.00 × 70% + $5.50 × 30% = $6.55

The Greenery sells three products. Product A has a contribution margin of $10 per unit, Product B has a contribution margin of $15 per unit and Product C has a contribution margin of $12 per unit. Sales are: 25% A, 35% B and 40% C. The weighted average unit contribution for The Greenery is ______.

($10 × 25% + $15 × 35% + $12 × 40%) = $12.55

Multi-product target profit analysis ______.

-depends upon the sales mix -is calculated the same way as single product analysis

The weighted average unit contribution margin ______.

-is based on the relative percentage of each unit sold -assumes that the percentage of each product sold is constant -is used instead of the single product contribution margin in multi-product break-even analysis

Given sales of 10,000 units per month, sales price per unit of $4.00, variable costs of $1.80 per unit and and total fixed costs of $5,000, the contribution margin ratio is _________%.

.55*100=55%

Desks by Daisy sells a student desk for $100 per unit. The variable cost per desk is $40 and Daisy's fixed costs of producing the desks equals $15,000 per month. Daisy needs to sell ___________ desks per month in order to break-even.

250

JVL Enterprises has set a target profit of $126,000. The company sells a single product for $50 per unit. Variable costs are $15 per unit and fixed costs total $98,000. How many units does JVL have to sell to BREAK EVEN?

2800 Reason: $98,000 ÷ ($50 - $15) = 2,800

A company sells 15,000 units of product per month. The sales price per unit is $5.00, variable costs are $2.80 per unit and and total fixed costs equal $3,000. The contribution margin ratio is Blank______.

44% Reason: ($5.00 - $2.80) ÷ $5.00 = 44%

Larson's Ltd. sells its product for $12.00 per unit. The contribution margin per unit is $8.00 and fixed costs are $75,000. Larson has to sell to Blank______ units to break even.

9375

Tess's Tidbits sells three different snack packs. The weighted average contribution margin is $15.00 and total fixed costs are $20,000 per month. Of her total sales, 40% are for the deluxe snack pack, 35% are standard snack packs and 25% are mini snack packs. In order to earn the target profit of $10,000 per month, Tess needs to sell __________deluxe snack packs each month.

Blank 1: 800

Given total fixed costs of $35,000 and a contribution margin ratio of 40%, $___________ of revenue must be earned to break even.

Blank 1: 87500 or 87,500

The amount each unit sold contributes towards fixed costs and profit is the unit ___________ _____________.

Blank 1: contribution Blank 2: margin

The extent to which a company uses fixed costs (as opposed to variable costs) in its operations is called

Blank 1: cost Blank 2: structure

The extent to which a company uses fixed costs (as opposed to variable costs) in its operations is called __________ __________.

Blank 1: cost Blank 2: structure

The excess of the budgeted (or actual) sales dollars over break-even sales is called the _______________ of ____________________.

Blank 1: margin Blank 2: safety

When performing a multiproduct CVP analysis, the weighted-average contribution margin per unit is computed using the ____________ mix, and the ___________ mix is used to compute the weighted-average contribution margin ratio.

Blank 1: product or products Blank 2: sales or sale

An extension of break-even analysis that allows managers to determine units or sales needed to achieve an earning's goal is called ______________ _____________analysis.

Blank 1: target Blank 2: profit

Jacki's Jewels sells 10,000 necklace & earring sets per year. Fixed costs are $80,000 and variable costs are $20 per set. Jacki is planning to increase the quality of the stones, which will increase variable costs by $8 per set and increase sales by 25%. If Jacki increases the quality of the stones, what price will she need to charge to attain her target profit of $60,000 per year?

Costs + Target Profit = ($28 x 12,500 + $80,000 + $60,000) = $490,000 ÷ 12,500 sales in units or $39.20 per set.

Sweet Dreams sells 15,000 pillows per year for $25 per unit. Variable cost per unit is $14. Sweet Dreams wants to improve customer satisfaction by using higher quality direct materials which will increase the variable cost per unit to $19. Fixed costs per year total $90,000. If sales increase by 5,000 units per year, what price will Sweet Dreams have to charge to earn the same profit it is earning now ($75,000 per year)?

Costs + Target Profit: ($19 × 20,000 + $90,000 + $75,000) = $545,000 ÷ 20,000 units = $27.25

True or false: The margin of safety is the excess of break-even sales dollars over budgeted (or actual) sales dollars.

False

True or false: CVP analysis is only used for break-even and target profit analysis.

False, CVP analysis can be used for a variety of different managerial decisions.

True or false: Cost structure refers to how a company uses product and period costs in an organization.

False; Cost structure refers to how a company uses fixed and variable costs in an organization.

True or false: The margin of safety is the excess of break-even sales dollars over budgeted (or actual) sales dollars.

False; The margin of safety is the excess of the budgeted (or actual) sales dollars over break-even sales dollars.

True or false: When computing target sales using the weighted-average contribution margin ratio, the ratio is computed according to the product mix.

False; The ratio is computed according to the sales mix, not the product mix.

Lilly's Lilacs sells two different potted plants - A and B. The weighted average per unit contribution margin is $30 and Lily's fixed costs are $24,000. The sales mix is 60% - A and 40% - B. Which of the following statements are true?

Lily must sell a total of 800 plants to break-even. If Lily sells 480 units of both A and B she will have a net profit.

How much contribution margin is generated per dollar of sales revenue is the contribution margin

Ratio

A company sells 15,000 units of product per month. The sales price per unit is $5.00, variable costs are $2.80 per unit and and total fixed costs equal $3,000. The contribution margin ratio is Blank______.

Reason: ($5.00 - $2.80) ÷ $5.00 = 44%

The equation for the profit equation method is Blank______.

Total Sales Revenue - Total Variable Costs - Total Fixed Costs = Profit

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 Blank______.

decrease; An increase in selling price increases contribution margin and decreases 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

A degree of operating leverage greater than one means that managers are using Blank______ to create operating leverage.

fixed costs

A degree of operating leverage greater than one means that managers are using ______ to create operating leverage.

fixed costs