The break-even point is reached when the contribution margin is equal to ___. Show
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 with be $___. $5,000 = ($10-$6) x 10,000 -$35,000 Softie, Inc. produces facial tissues. The company's contribution margin ratio is 77%. Fixed expenses are $240,400. To achieve a target profit of $930,000, Softies' sales rounded to the nearest dollar must be ___. $1,520,000 = ($240,400 + $930,000)/77% Company A has sales of $500,000, variable costs of $350,000, and fixed costs of $150,000. Company A has done what two things?
A company reports the following for a sales volume of 200 units: $100,000 in sales and $80,000 in variable costs. If the break-even point is 200 units and the company sells 201 units, net profit will be: $100 = ($100,000 - $80,000)/200 To calculate the degree of leverage, divide ___ ___ by net operating income. Elle's Elephant Shop sells giant stuffed elephants for $55 each. Each elephant has variable costs of $10 and total fixed costs are $700. If Ellie sells 35 elephants this month, profits will equal what? $875 = 35 x ($55 - $10) - $700 Elle's Elephant Shop sells giant stuffed elephants for $55 each. Each elephant has variable costs of $10 and total fixed costs are $700. If Ellie sells 35 elephants this month, total variable costs equal what? Elle's Elephant Shop sells giant stuffed elephants for $55 each. Each elephant has variable costs of $10 and total fixed costs are $700. If Ellie sells 35 elephants this month, total sales equal what? Vivian's Violins has sales of $326,000, contribution margin of $184,000 and fixed costs total $85,000. Vivian's Violins net operating income is ___. $99,000 = $184,000 - $85,000 What three things is the break-even point calculation affected by?
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 $___. What is the correct order of items in which they appear on the contribution margin format income statement?
Cost-Volume-Profit (CVP) analysis allows companies to easily identify the change in profit due to changes in what three things?
Variable expenses + Sales is the calculation for the ___ ___ ratio. Company A has a contribution margin ratio of 35%. For each dollar in sales, contribution margin will increase by ___. 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 = ($320,000 + $200,800)/($90 - $28) 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 ___. Contribution margin is first used to cover (1.)___ expenses. Once the break-even point has been reached, contribution margin becomes (2.)___.
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, what two things can you infer?
The amount by which sales can drop before losses are incurred in the (1.)___ of (2.)___.
Run Like the Wind sells ceiling fans. Target profit for the year is $470,000. If each fan's contribution margin is $32 and fixed costs total $222,640, the number of fans required to meet the company's goal is: 21,645 = ($470,000 - $222,640)/$32 A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. The break-even point in unit sales is ___. A change in sales mix what two things?
The contribution margin income statement allows users to easily judge the impact of a change in what three aspects on profit?
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 $___. When a company produces and sells multiple products, what three things can be inferred?
The contribution margin is equal to sales minus ___. Profit = (selling price per unit x quantity sold) - ((1.)___ expense per unit x quantity sold) - (2.)___ expenses.
The break-even point is the level of sales at which the profit equals ___. Company A's product sells for $90 and has a variable cost $35 per unit. Fixed costs total $550,000. If Company A sells 16,000 units, the contribution margin per unit is ___. Terry's Trees has reached its break-even point and has a contribution margin ratio of 70%. For each $1 increase in sales, what two things can be inferred?
What two statements about scattergraph are true?
The measure of how a percentage change in sales affects profits at any given level of sales is the ___. degree of operating leverage The variable expense ratio is the ratio of variable expense to ___. After reaichng the break-even point, a company's net operating income will increase by the ___ ___ per unit for each additional unit sold. Paula's Perfumes has a target profit of $4,000 per month. Perfume sells for $15.00 per bottle and variable costs are $13.50 per bottle. Fixed costs are $3,200 per month. The number of bottles that must be sold each month to earn the target profit is ___. 4,800 = ($4,000 + $3,200)/($15.00 - $13.50)
Contribution margin ratio is equal to (1.)___ ___ divided by (2.)___.
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? 2,800 = $98,000/($50 - $15) Variable expenses divided by Sales is the calculation for the ___ ___ ratio. When constructing a Cost-Volume-Profit (CVP) graph, the vertical axis represents ___. In the equation, Y = a + bX, 'a' represents what two things?
Sweet Dreams sells pillows for $25 each. Variable costs are $15 per pillow. The company is considering improving the quality of materials which will increase variable costs to $19. The company currently sells 1,200 pillows per month and expects that the improved materials would increase sales to 1,500 per month. The impact of this change on total contribution margin would be a(n) (1.)___ of (2.)___.
Using the high-low method, the fixed cost is calculated when and how? It is calculated after the variable cost per unit is calculated by using either the high or low level of activity. Users can easily judge the impact on profits of changes in selling price, cost or volume when using an income statement constructed under the ___ approach. Polly's Day Planners sells its planners for $35 each. Sales this year equals $927,500. The margin of safety is $27,300. The margin of safety in units is ___. In the equation, Y = a + bX, 'b' represents what two things?
Ceramic Creations sells pots for $25. The variable cost per pot is $12 and 15,000 pots must be sold to break-even. If Ceramic Creations sells 25,000 pots, net operating income will be ___. $130,000 = (25,000 - 15,000) x ($25 - $12) The calculation of contribution margin (CM) ratio is ___. contribution margin divided by sales To convert the formula for sales dollars required to attain a target profit to sales dollars required to break-even, set the target profit to ___. The break-even point can be affect by what three things?
Steel, Inc. has a margin of safety in dollars of $559,740. If actual sales were $2,946,000, Steel's margin of safety percentage is ___. 19% = $559,740/$2,946,000 To prepare a Cost-Volume-Profit (CVP) graph, lines must be drawn representing total revenue and what two other variables?
What two assumptions can be made of Cost-Volume-Profit (CVP) analysis?
Sales total $500,000, and fixed costs total $300,000. The contribution margin ratio is 68%. Profit = ___. $40,000 = ($500,000 x 68%) - $300,000 A measure of how sensitive net operating income is to a given percentage change in sales dollars is known as operating ___. A company sold 750 units with a contribution margin of $120 per unit. If the company has a break-even point of 450 units, the net operating income or (loss) is ___. $36,000 = (750 - 450) x $120 In the equation, Y = a + bX, 'X' represents what? Candie Central has $1,440 of total variable expense for a sales level of 600 units and $2,160 of total variable expense for a sales level of 900 units. If Candie Central sells 500 units, what two costs are incurred?
The relative proportions in which a company's products are sold is referred to as ___ ___. Fixed manufacturing overhead costs are included as part of Work in Process inventory under ___. For external reporting, income statements are generally prepared using (1.)___ costing, while (2.)___ costing is used for internal decision making purposes.
How are the costs separated for absorption costing? By manufacturing, selling and administrative. Common mistakes made by companies when assigning costs to segments include what three things?
How are the costs separated for variable costing? Variable costing treats ___ manufacturing costs as product costs. Frames, Inc. manufactures large wooden picture frames. Each frame requires $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame produced, and variable selling and administrative expense is $13 per frame sold. The company produces 5,000 units each month and a total fixed manufacturing overhead cost per month is $15,000. The unit product cost of each frame using variable costing is ___. When preparing a segment margin income statement, what two things are considered?
Variable costing income statements are based upon a ___ format. When the number of units produced equals the number of units sold, what two things occur?
The segment margin equals the segment's contribution margin less the segment's ___ fixed costs. When inventory increases, absorption costing net operating income is higher than variable costing net income due to the fixed manufacturing overhead ___. deferred in the inventory account on the balance sheet Why is Cost-Volume-Profit (CVP) analysis more difficult when using absorption costing than when using variable costing? Cost-Volume-Profit (CVP) analysis requires costs to be broken down between variable and fixed which is not done in absorption costing. When a segment is eliminated, what occurs to common and traceable fixed cost? Common fixed cost will remain unchanged and traceable fixed cost will disappear. Product costs under absorption costing include what four things?
When inventory increases, which costing method generally results in higher net income? Given the following information, calculate the unit product cost under absorption costing. Direct materials: $50/unit Direct labor: $75/unit Variable manufacturing overhead: $27/unit Fixed manufacturing overhead: $30,000 Units produced: 10,000 Units sold: 6,000 $155 = $50 + $75 + $27 + ($30,000/10,000) The unit product cost of a blender is $24. If 900 blenders are produced and 849 blenders are sold, the total cost of goods sold is ___. For what two reasons should a segment be discontinued?
When allocating fixed manufacturing overhead costs to units under absorption costing, the total fixed overhead costs must be divided by the number of units ___. When using absorption costing and explaining changes in operating income, financial statement users need to be aware of changes in ___ levels. Absorption costing is required by what? Absorption costing is used by who and for what? By most companies for both internal and external reports. Granny's Touch manufactures and sells cookbooks. The company's variable cost of goods sold is $39,200 and variable selling and administrative expense is $6,200. Fixed manufacturing overhead is $19,700 and fixed selling and administrative expense is $9,290. An income statement prepared using variable costing shows ___ as the total fixed expenses. $28,990 = $19,700 + $9,290 The Quaint Quilt produces and sells handmade quilts. Variable manufacturing costs total $140 per quilt. Fixed manufacturing overhead total $68,250 per quarter. Variable selling and administrative costs are $19 per quilt sold, and fixed selling and administrative costs are $50,000 per quarter. Last quarter, the company produced 910 quilts and sold 780 quilts. The total variable cost reported on Quaint Quilt's variable costing income statement is ___. $124,020 = ($140 + $19) x 780 Using absorption costing for segmented income statements can lead to what two things?
Citrus Scents produces body sprays. Each bottle has a unit product cost of $5.38. The company produced 1,490 bottles this month and sold 1,203 of those bottles. Total cost of goods sold was ___. $6,472.14 = $5.38 x 1,203 Arbot Co. manufactures appliances at three manufacturing facilities in the United States. Each location has a plant manager who oversees the manufacturing process for that location. Segmented income statements are prepared for each plant and for each product manufactured in the plant. The salary of each plant manager is a ___ for the individual product lines made in the plant. traceable fixed cost to the plant and a common fixed cost (for the individual product lines) Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will ___ in total as the number of units produced increases. Discontinuing a profitable segment results in what two things?
Using variable costing and the contribution approach for internal decision making does what three things?
A company's operations can be divided by product lines, geographical area, manufacturing plants, service centers or sales territories, which are known as ___. One mistake companies make when preparing segmented income statements is arbitrarily assigning ___ fixed costs to segments. Segment contribution margin equals segment revenue minus the ___ expenses for the segment. Absorption costing and variable costing net operating income will be equal when what two things occur?
The segment margin is a valuable tool for assessing the long-run ___ of a segment. What is not a common mistake made in preparing segmented income statements? Computing contribution margin instead of gross margin. Absorption costing net operating income may not agree with the net operating income calculated for Cost-Volume-Profit (CVP) analysis due to the way in which ___ is handled in absorption costing. fixed manufacturing overhead Put'er There manufactures baseball gloves. Each glove requires $22 of direct materials and $18 of direct labor. Variable manufacturing overhead cost is $7 per unit and fixed manufacturing overhead cost is $19,000 in total. Variable selling and administrative costs are $11 per unit sold and fixed selling and administrative costs are $13,200. Last period, 800 gloves were produced, and 585 gloves were sold. The unit product cost using variable costing is ___ per unit. An otherwise profitable segment may appear to be unprofitable if ___ fixed costs are allocated to it. Fixed manufacturing overhead costs are expensed as units are sold as part of cost of goods sold under (1.)___ costing, and expensed in full with period costs under (2.)___ costing.
GAAP and IFRS rules do what three things?
Segmented income statements ___. may be prepared for activities and many levels in a company Incorrectly or arbitrarily assigning common costs to segments does what three things?
Net operating income under absorption costing is generally ___ net operating income under variable costing in periods in which inventory increases. Net operating income is less under absorption costing than under variable costing when inventory for the period ___. Absorption and variable costing net income are usually different due to the accounting for ___. fixed manufacturing overhead Pearls, Pearls, Pearls! manufactures and sells jewelry. The total variable cost of goods sold this month is $72,490. Variable selling and administrative cost is $22 per unit sold. If 350 units are produced and 314 units are sold this month, the total variable cost reported on the income statement for the month is ___. $79,398 = $72,490 + ($22 x 314) A fixed cost that supports the operations of more than one segment, but is not traceable in whole or part to any one segment is a(n) ___ fixed cost. Decision-making problems that could occur when using absorption costing include inappropriate (1.)___ decisions, and decisions made to (2.)___ products that are, in fact, profitable.
When a segment cannot cover cover its own costs, that segment should ___. JPL Company has two segments - Retail and Commercial. The Retail segment has a contribution margin ratio of 40% and traceable fixed expenses of $70,000. Commercial has traceable fixed expenses of $50,000 and a contribution margin ratio of 55%. The company also has $30,000 of common fixed expenses. The break-even point in dollar sales for the Retail segment equals ___. Bart's Inc. operates retail stores in various cities. Segmented income statements are prepared for each store and for each product line in each store. The property tax for the store is a(n) (1.)___ fixed cost for the store, and a(n) (2.)___ fixed cost for each product line sold in the store.
The company-wide break-even sales will always be ___ the sum of the segment break-even sales. Advocates of variable costing believe fixed manufacturing costs are what? Advocates of variable costing believe fixed manufacturing costs are not caused by and cannot be meaningfully traced to what? Specific units of production. Variable costing net income may be computed by multiplying the number of units sold by the (1.)___ ___ per unit and subtracting total (2.)___ expenses.
Advocates of ___ costing believe fixed costs are an essential part of product production. On an absorption costing income statement, selling and administrative expenses are equal to what? The amounts reported on a variable costing income statement. On an absorption costing income statement, selling and administrative expenses are reported as what? Determining whether to carry out an activity in the value chain internally or use a supplier is a ___ decision. Space being used that would otherwise be idle has a(n) ____ cost of zero. What are two synonyms for differential costs?
Two or more products that are produced from a common input are known as ___ products. What are two potential advantages of dropping a product line or other segment?
Deciding what to do with a joint product at the split-off point is a ___ decision. A one-time sale that is not considered part of the company's normal ongoing business is referred as a(n) ___ ___ decision. When deciding whether to drive your car or take a train to a destination, the costs for your car insurance and driver's license are ___ costs. When making a decision to either buy a movie ticket or rent a DVD, the cost of the movie ticket is an example of what two types of costs?
The potential benefit given up when selecting one alternative over another is a(n) ___ cost. Anything that prevents you from getting more of what you want is a(n) ___. Costs incurred up to the split-off point in a process in which two or more products are produced from a common input are called ___ costs. What two costs should not be included in the analysis when making a decision?
Costs and benefits that always differ between alternatives are ___ costs and benefits. For what three reasons make isolating relevant costs desirable?
Irrelevant costs include what two things?
When planning a trip and deciding whether to drive or fly, the ___ is a sunk cost and should be ignored. A cost that has already been incurred and cannot be avoided regardless of what a manager decides to do is referred to as a(n) ___ cost. If a company has a resource that could be used for something else, the ___ cost is the profit that could be derived from the best alternative use of the resource. The first step in decision making is to ___. When making a volume-trade off decision, managers should ignore ___. A cost that can be eliminated by choosing one alternative over another is a(n) ___ cost. A limited resource of some type that restricts the company's ability to satisfy demand is a(n) ___. A future cost that is not the same between any two alternatives is known as a(n) ___, incremental, or avoidable cost. A business segment should only be dropped if a company can avoid more in fixed costs than it gives up in ___. What are two ways to increase the capacity of a bottleneck?
Costs that have no impact on future cash flows and are irrelevant to decisions are ___ costs. A company is considering buying a component part that they currently make. What two items related to the equipment currently being used to make the component are relevant to the decision?
A decision to carry out one of the activities in the value chain internally, rather than to buy externally from a supplier, is called a(n) (1.)___ or (2.)___ decision.
What may be two advantages of making a part rather than buying it?
Why is CVP analysis more difficult with absorption costing?Why is Cost-Volume-Profit (CVP) analysis more difficult when using absorption costing than when using variable costing? Cost-Volume-Profit (CVP) analysis requires costs to be broken down between variable and fixed which is not done in absorption costing.
What is the relationship between absorption costing net income and variable costing net income?When units produced are greater than units sold, i.e., units in inventory increase, absorption income is greater than variable costing income because absorption costing defers a portion of fixed manufacturing costs in finished goods inventory.
When production is equal to sales net operating income reported under variable costing will be?7-6 If production and sales are equal, net operating income should be the same under absorption and variable costing. When production equals sales, inventories do not increase or decrease and therefore under absorption costing fixed manufacturing overhead cost cannot be deferred in inventory or released from inventory.
When inventory increases which costing method generally results in higher net income?This is consistent with a general rule of thumb: Increases in inventory cause income to be higher under absorption costing than under variable costing, and vice versa. To further examine the reason income is higher, remember that $450,000 was attributed to total production under absorption costing.
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Net income computed under blank______ costing may not agree with the results of cvp analysis.
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