Smart Book 2

To simplify CVP calculations, which of the following is assumed to remain constant?

Selling price

If a company has sales of $100,000 a contribution margin of $40,000, and fixed expenses of $50,000 the company has a:

$10,000 net operating loss

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

.35

Which tool can be used to easily calculate the change in profit resulting from a change in sales price, sales volume, variable costs, or fixed costs?

CVP analysis

A company has reached its break-even point when the contribution margin ___ fixed expenses.

equals

Contribution margin is first used to cover ___ expenses. Once the break-even point has been reached, contribution margin becomes ___.

fixed profit

Total contribution margin equals:

fixed expenses plus net operating income

CVP analysis focuses on how profits are affected by:

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

The contribution margin income statement allows users to easily judge the impact of a change in ______ on profit.

selling price volume costs

Contribution margin ratio is equal to ___ ___ divided by ___.

contribution margin sales

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

false

An income statement constructed under the ______ approach allows users to easily judge the impact on profits of changes in selling price, cost or volume.

contribution margin

A company's selling price is $90 per unit, variable cost per unit is $28 and total fixed expenses are $320,000. The number of unit sales needed to earn a target profit of $200,800 is:

8,400

Company A has fixed costs of $564,000 and a contribution margin of 62%. Sales dollars to break-even rounded to the nearest whole dollar equals:

909677

Company A sold 200,000 units. Selling price is $7 per unit, contribution margin is $4 per unit, and the fixed expenses total $632,000. Company A's profit (loss) is:

$168,000

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:

$244,068

Profit equals:

(P x Q) - (V x Q) - fixed expenses

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 $___.

168000

Marjorie's Mugs sold 300 mugs last year for $20 each. Variable costs were $7 per mug and total fixed costs were $1,700. Marjorie's Mugs' profit was:

2200

Shonda's Shoes sell for $95 per pair. If Shonda must sell 284 pairs of shoes to break-even, sales dollars needed to break-even equals $___.

26980

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

Company A sells its product for $10 per unit. If Company A has variable expenses of $5 per unit and fixed expenses of $200,000, the break-even point in units and dollars is:

40000 units and 400000

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

Company A's product sells for $90 and has a variable cost of $35 per unit. Fixed costs total $550,000. If Company A sells 16,000 units, the contribution margin per unit is:

55

CVP is the acronym for __-__-__

Cost Volume Profit

True or false: CVP analysis investigates company personnel policies, business values, and performance measures for a specific company.

False

True or false: Simple CVP analysis can be relied on for changes in volume outside the relevant range.

False

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

In multi product companies, the sales mix is constant. Costs are linear and can be accurately divided into variable and fixed elements.

Which of the following statements is correct?

The higher the margin of safety, the lower the risk of incurring a loss.

Which of the following is needed to calculate profit?

Unit contribution margin, unit sales, and total fixed costs

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

Variable expenses Sales

The contribution margin equals sales minus:

all variable costs

CVP analysis is based on some ___ that may be violated in practice, but the tool is still generally useful.

assumptions

Contribution margin:

becomes profit after fixed expenses are covered

Multiplying unit selling price times the number of units required to break-even is one way to calculate:

break-even sales dollars

The calculation of contribution margin (CM) ratio is:

contribution margin/sales

According to the CVP analysis model and assuming all else remains the same, profits would be increased by a(n):

decrease in the unit variable cost

the amount by which sales can drop before losses are incurred is the ___ of ___.

margin safety

If the total contribution margin is less than the total fixed expenses, then a ______ will occur.

net loss

At the break-even point:

net operating income total revenue equals total costs

Terry's Trees has reached its break-even point and has calculated its contribution margin ratio to be 70%. For each $1 increase in sales:

net operating income will increase by $0.70 total contribution margin will increase by $0.70

Pete's Putters sells each putter for $125. The variable cost is $60 per putter and fixed costs total $400,000. Based on this information:

the contribution margin per putter is $65. the sale of 12,000 putters results in net operating income of $380,000

Pete's Putters sells each putter for $125. The variable cost is $60 per putter and fixed costs total $400,000. Based on this information:

the sale of 12,000 putters results in net operating income of $380,000 the contribution margin per putter is $65.

Profit = (selling price per unit x quantity sold) - ( ___ expense per unit x quantity sold) - ___ expenses.

variable fixed

Variable expenses/Sales is the calculation for the ___ ___ ratio.

variable expense

When a company only produces a single product, the total variable cost can be calculated with the equation:

variable cost per unit multiplied by quantity of units sold

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 costs selling price

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

zero

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

1) sales variable expenses contribution margin fixed expenses net operating income

Pretty in Pearls sold 95 necklaces last month. If variable cost per unit is $40 and fixed costs total $3,085, the company's total variable cost was:

3800

Blissful Blankets' target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets Blissful Blankets need to sell in order to achieve its target profit is:

40,000

The contribution margin statement is primarily used for:

internal decision making

The equation used to calculate the variable expense ratio using total values is total variable expenses divided by total:

sales

The variable expense ratio is the ratio of variable expense to:

sales

A company needs to sell 90,000 units to reach the target profit of $180,000. If each unit sells for $7.50, the total sales dollars needed to reach the target profit is $___.

675000

To calculate profit, multiply the ______ per unit by sales volume and subtract total fixed cost.

contribution margin