Podcast
Questions and Answers
In a CVP graph, what is usually represented on the horizontal (X) axis?
In a CVP graph, what is usually represented on the horizontal (X) axis?
- Total fixed expenses
- Unit volume (correct)
- Dollars
- Contribution margin
What does the unit contribution margin (Unit CM) express?
What does the unit contribution margin (Unit CM) express?
- Total revenue at a specific volume
- Total fixed expenses
- Contribution per unit towards covering fixed costs (correct)
- Profit at a specific volume
What does the CVP graph illustrate?
What does the CVP graph illustrate?
- Contribution margin at different volumes
- Total revenue at different volumes
- Relationships among revenue, cost, profit, and volume (correct)
- Total fixed expenses at different volumes
What does the equation for profit in CVP analysis typically include?
What does the equation for profit in CVP analysis typically include?
When a company has only one product, how can the profit equation be further refined?
When a company has only one product, how can the profit equation be further refined?
What is expressed graphically in a CVP graph?
What is expressed graphically in a CVP graph?
What is the formula to calculate the predetermined overhead rate based on direct labor-hours?
What is the formula to calculate the predetermined overhead rate based on direct labor-hours?
What can inaccurately assigning manufacturing costs to jobs adversely influence?
What can inaccurately assigning manufacturing costs to jobs adversely influence?
What is a cost driver in the context of overhead costs?
What is a cost driver in the context of overhead costs?
In job-order costing, what is used to allocate all manufacturing overhead costs to jobs?
In job-order costing, what is used to allocate all manufacturing overhead costs to jobs?
In the context of multiple predetermined overhead rates, what is used as the allocation base in the Milling Department?
In the context of multiple predetermined overhead rates, what is used as the allocation base in the Milling Department?
What pricing method does Dickson Company use to establish selling prices for its jobs?
What pricing method does Dickson Company use to establish selling prices for its jobs?
What method is used to compute the number of units that must be sold to attain a target profit?
What method is used to compute the number of units that must be sold to attain a target profit?
What does the margin of safety represent?
What does the margin of safety represent?
What does cost structure refer to?
What does cost structure refer to?
What does operating leverage measure?
What does operating leverage measure?
How does structuring sales commissions based on contribution margin impact conflicts and profits?
How does structuring sales commissions based on contribution margin impact conflicts and profits?
How does the sales mix affect the break-even point and contribution margin?
How does the sales mix affect the break-even point and contribution margin?
What is the purpose of using predetermined overhead rates in job-order costing?
What is the purpose of using predetermined overhead rates in job-order costing?
Which cost is related to manufacturing and can be inventoried in job-order costing?
Which cost is related to manufacturing and can be inventoried in job-order costing?
What is used as the allocation base to assign manufacturing overhead to individual jobs in job-order costing?
What is used as the allocation base to assign manufacturing overhead to individual jobs in job-order costing?
How is the predetermined overhead rate computed in job-order costing?
How is the predetermined overhead rate computed in job-order costing?
Which type of costs are applied using a predetermined overhead rate in job-order costing?
Which type of costs are applied using a predetermined overhead rate in job-order costing?
Why are predetermined overhead rates used in job-order costing?
Why are predetermined overhead rates used in job-order costing?
What is the formula for calculating the contribution margin ratio (CM ratio)?
What is the formula for calculating the contribution margin ratio (CM ratio)?
In break-even analysis, how are unit sales at break-even calculated using the formula method?
In break-even analysis, how are unit sales at break-even calculated using the formula method?
What is the dollar sales at break-even computed using in break-even analysis?
What is the dollar sales at break-even computed using in break-even analysis?
In Example 1, what was the impact on net operating income when unit sales increased by 40 units with a $10,000 increase in advertising budget?
In Example 1, what was the impact on net operating income when unit sales increased by 40 units with a $10,000 increase in advertising budget?
What is the variable expense ratio calculated as?
What is the variable expense ratio calculated as?
In Example 5, to increase monthly profits by $3,000, what price should RBC quote to sell 150 bikes to a wholesaler?
In Example 5, to increase monthly profits by $3,000, what price should RBC quote to sell 150 bikes to a wholesaler?
Study Notes
Contribution Margin and Break-Even Analysis
- Contribution margin graph: plot total expenses and total sales at a chosen sales volume, draw lines to fixed expenses and the point of origin
- Contribution margin ratio (CM ratio): calculated as contribution margin per unit divided by selling price per unit
- Variable expense ratio: calculated as variable expenses divided by sales
- Applications of contribution ratio: increase in sales volume will increase contribution margin
- Example 1: Increasing unit sales by 40 units with a $10,000 increase in advertising budget decreased net operating income by $2,000
- Example 2: Increase in unit sales from 500 to 580 with a $10 increase in variable costs per unit resulted in a $10,200 increase in net operating income
- Example 3: Sales increased by $62,000, fixed costs increased by $15,000, and net operating income increased by $2,000 after reducing selling price and increasing advertising budget
- Example 4: Switching from fixed salaries to sales commission resulted in a $12,375 increase in net operating income after increasing unit sales
- Example 5: To increase monthly profits by $3,000, RBC should quote a price of $320 per bike to sell 150 bikes to a wholesaler
- Break-even analysis: unit sales at break-even calculated using contribution margin formula and equation method
- Formula method: a shortcut version of the equation method, each unit sold contributes towards covering fixed expenses
- Dollar sales at break-even: computed using both the equation and formula methods
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Description
Test your knowledge of contribution margin and break-even analysis with this quiz. Explore concepts such as contribution margin graph, CM ratio, variable expense ratio, and applications of contribution ratio through practical examples. Also, delve into break-even analysis, including unit sales and dollar sales at break-even using formula and equation methods.
