ACCTG 202 Ch. 5 Flashcards

Questions and Answers

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

False

According to the CVP analysis model, profits would be increased by a(n):

decrease in the unit variable cost.

The contribution margin is equal to sales minus:

variable expenses.

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

equals Signup and view all the answers

Vivian's Violins net operating income is:

$99,000 Signup and view all the answers

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

Variable; Fixed Signup and view all the answers

The sale of 12,000 putters results in net operating income of:

$380,000 Signup and view all the answers

Company A's profit (loss) is:

$168,000 Signup and view all the answers

The calculation of contribution margin (CM) ratio is:

contribution margin/sales. Signup and view all the answers

The contribution margin ratio was:

53% Signup and view all the answers

For each $1 increase in sales, net operating income will increase by:

$0.70 Signup and view all the answers

If Anne's Antique store generates an additional $600,000 of sales for the year, net operating income will increase by:

$174,000 Signup and view all the answers

Variable expenses/Sales is the calculation of the _ __ ratio.

Variable expense Signup and view all the answers

Profit is:

$40,000 Signup and view all the answers

The equation used to calculate the variable expense ratio is:

total variable expenses divided by total Sales. Signup and view all the answers

The variable expense ratio for Plush & Cushy's chairs is:

45% Signup and view all the answers

If the company expects to increase sales to $735,000, net operating income will increase by:

$7,750 Signup and view all the answers

The break-even point in unit sales is:

7,625 units. Signup and view all the answers

Company A's break-even point in units and dollars is:

40,000 units and $400,000. Signup and view all the answers

Sales dollars to break-even is:

$909,677. Signup and view all the answers

The number of blankets Blissful Blankets need to sell in order to achieve its target profit is:

40,000. Signup and view all the answers

The number of fans required to meet the target profit is:

21,645. Signup and view all the answers

CVP analysis focuses on how profits are affected by:

selling price, total fixed costs, unit variable cost, mix of products sold, sales volume. Signup and view all the answers

For each dollar in sales, contribution margin will increase by:

$0.35. Signup and view all the answers

If the move is made, profits will:

decrease by $2,000. Signup and view all the answers

Net operating income will increase by:

$6,000. Signup and view all the answers

A change in profits due to a change in sales and fixed expenses may be calculated as:

CM ratio x Change in sales - Change in fixed expenses. Signup and view all the answers

Net operating income can be estimated for any sales volume above the break-even point by ___________ the number of units sold above the point by the unit CM.

Multiplying Signup and view all the answers

Place the following items in the order in which sales dollars are applied on a CM income statement.

Variable costs = 1. Fixed expenses = 2. Net income = 3. Signup and view all the answers

Steel, Inc.'s margin of safety percentage is:

19%. Signup and view all the answers

The CM income statement allows users to easily judge the impact of a change in ______, _ _, ____ on profit.

Cost, selling price, volume Signup and view all the answers

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

Sales = 1. Variable expenses = 2. CM = 3. Fixed expenses = 4. NOI = 5. Signup and view all the answers

If Candie Central sells 500 units, the total variable cost was:

$1,320. Signup and view all the answers

A measure of how sensitive net operating income is to a given percentage change in sales dollars is known as:

Operating leverage. Signup and view all the answers

A company sells 10,000 units of a product. The impact of spending $50,000 on advertising will likely cause profits to:

increase by $24,000. Signup and view all the answers

To calculate the degree of operating leverage, divide _ ___ by NOI.

Contribution margin Signup and view all the answers

If Pretty in Pearls sells 95 necklaces, the company's total variable cost was:

$3,800. Signup and view all the answers

The impact of changing materials on total CM would be a(n) _ of __.

Decrease; $3,000. Signup and view all the answers

The break-even point calculation is affected by:

Sales mix, costs per unit, selling price per unit. Signup and view all the answers

The total sales dollars needed to reach the target profit is:

$675,000. Signup and view all the answers

Study Notes

CVP Analysis Overview

CVP (Cost-Volume-Profit) analysis helps determine the impact of selling prices, total fixed costs, unit variable costs, product sales mix, and sales volume on profits.
Contribution margin is calculated as sales minus variable expenses.
Profit equation: Profit = (Selling Price per Unit × Quantity Sold) - (Variable Expense per Unit × Quantity Sold) - Fixed Expenses.

Break-Even Point Insights

Break-even is reached when contribution margin equals fixed expenses.
Contribution margin ratio is determined by dividing contribution margin by sales.
A change in profits is influenced by alterations in sales and fixed expenses. Formula: CM Ratio × Change in Sales - Change in Fixed Expenses.

Specific Financial Analyses

Vivian's Violins has a net operating income of $99,000 derived from sales of $326,000 and fixed costs of $85,000.
Pete's Putters achieves a net operating income of $380,000 after selling 12,000 putters, benefitting from a contribution margin of $65 per putter.
Company A's profit of $168,000 results from selling 200,000 units with a total contribution margin of $800,000 after deducting fixed expenses of $632,000.

Contribution Margin and Ratios

Contribution margin ratio for Gifts Galore: 53%.
Terry's Trees increases net operating income by $0.70 for each $1 increase in sales due to a contribution margin ratio of 70%.
Anne's Antique has a contribution margin ratio of 29%; additional sales of $600,000 will increase net operating income by $174,000.

Variable and Fixed Cost Relationships

Variable expense ratio is calculated by dividing variable expenses by sales.
Plush & Cushy's variable expense ratio is 45% based on a variable expense of $85.05 and a selling price of $189.00.
Changing the sales mix impacts break-even, as each product likely has different fixed costs and contribution margins.

Sales and Operating Income Dynamics

Operating leverage measures sensitivity of net operating income to changes in sales. Calculate using contribution margin divided by net operating income.
A company with $700,000 in sales and a 45% CM ratio sees its net operating income increase by $7,750 after raising sales to $735,000 and spending $8,000 on advertising.

Break-Even Calculations

Break-even point in units can be determined with the formula: Fixed Costs / Contribution Margin per Unit.
Blissful Blankets needs to sell 40,000 units to meet a target profit of $520,000 given fixed costs of $320,000.
Company A's break-even sales dollars equal $909,677 with fixed costs at $564,000 and a 62% contribution margin ratio.

Impact of Changes on Net Operating Income

Tommy's Trains profits will increase by $120,000 upon selling an additional 5,000 trains.
Sweet Dreams could see a decrease in total contribution margin by $3,000 if variable costs increase after improving materials, despite an increase in sales volume.

Margin of Safety Measurement

Margin of safety is calculated as actual sales minus break-even sales; its percentage shows the cushion before operating at a loss.
Steel, Inc. has a margin of safety percentage of 19% based on actual sales of $2,946,000.

Financial Interpretation on Income Statements

CM income statements prioritize sales, variable expenses, contribution margin, fixed expenses, and net operating income for clear visibility on profit dynamics.
A company's potential profits can be more accurately analyzed using CM formats to understand the impacts of cost and sales price changes.

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Test your understanding of Chapter 5 in ACCTG 202 with these learn smart flashcards. The quiz covers key concepts such as CVP analysis and contribution margins essential for managerial accounting. Perfect for students looking to reinforce their knowledge in the subject.