Chapter 3 Smartbooks (Cost)

Cost-volume-profit analysis includes all of the following except ______.

revenues
assets
volume
cost
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Cost-volume-profit analysis includes all of the following except ______.

revenues
assets
volume
cost
assets
The profit equation is ______.

total revenues = operating profit - total costs
operating revenues = total profit - total costs
operating profit = total revenues + total costs
operating profit = total revenues - total costs
operating profit = total revenues - total costs
Select the choices that correctly express the Profit Equation.

Total costs = Total revenues - Operating profit
Operating profit = Total revenues - Total costs
Total revenues = Operating profit - Total costs
Operating profit = Total revenues + Total costs
Total costs = Total revenues - Operating profit
Total costs = Total revenues - Operating profit
Given the following information, calculate break-even volume in sales dollars:


Selling price per unit $20
Variable cost per unit $12
Fixed costs $1,000

$125
$2,500
$50
$2,000
$2,500
Reason:
Unit contribution margin = selling price/unit - variable cost/unit = 8
Contribution margin ratio = Unit contribution marginsales price per unitUnit contribution marginsales price per unit = 820820= 0.4 or 40%
Break-even volume sales dollar = Fixed costcontribution margin ratioFixed costcontribution margin ratio= (1000/0.4) =$2500
Break-even volume in sales dollars =

Fixed costs/Unit contribution margin
Fixed costs/Contribution margin ratio
Contribution margin ratio/Fixed costs
Fixed costs/Sales price per unit
Fixed costs/Contribution margin ratio
True or false: Profit = (P - V)X + F

True
False
False
Reason:
Profit = (P-V)X - F
The volume level at which profits equal zero is called the __________ _____________ point
break-even
The process where managers understand the relationships between revenues, costs, volume and profit is called cost -
volume
profit
analysis
Given the following information, calculate break-even volume (in units):

Selling price per unit $14
Variable cost per unit $10
Fixed costs $1000

50 units
3,500 units
250 units
100 units
250 units
Reason:
BE in units = $1000/($14-$10)
(Price - Variable costs) x Units of output - Fixed costs = _________
profit
Target volume (units) = Target profit/Unit contribution margin (Fixed costs + Target profit)/Contribution margin ratio (Fixed costs - Target profit)/Unit contribution margin (Fixed costs + Target profit)/Unit contribution margin(Fixed costs + Target profit)/Unit contribution marginThe contribution margin ___________is the contribution margin as a percentage of sales revenue.ratioOn a CVP graph, volume is plotted on the vertical axis profit = TR - TC TR = TC at breakeven as volume (X) increases, fixed costs increasesprofit = TR - TC TR = TC at breakevenGiven the following information, calculate profit: Selling price per unit$150.00 Variable cost per unit $120.00 Fixed costs $1,000 Number of units 100 $3,000 $5,000 $2,000 $2,500$2,000 Reason: Profit = (P-V)X - F = ($150 - 120)x100 -$1,000 = $2,000The slope of the profit-volume line represents ______. profit variable cost per unit fixed cost per unit revenue per unit unit contribution marginunit contribution marginTrue or false: At the break-even point, profit = total expenses. True FalseFalse Reason: At the break-even point, profit equals zero. Total revenue = total expenses.A company that is capital intensive has a cost structure with a high proportion of _______costsfixedBreak-even volume in units = Fixed costs/Unit contribution margin Fixed costs/Contribution margin ratio Unit contribution margin/Sales price per units Unit contribution margin/Fixed costsFixed costs/Unit contribution marginOperating leverage ______. is the extent a firm's cost structure is made up of fixed costs impacts how profits increase after breakeven can vary within an industry is high in firms with a high proportion of variable costsis the extent a firm's cost structure is made up of fixed costs impacts how profits increase after breakeven can vary within an industryGiven the following information, calculate target volume (in units): Sales price per unit $25 Variable cost per unit $15 Target profit $5,000 Fixed costs $1,000 $15,000 400 units 600 units 500 units600 unitsTrue or false: In general, companies with lower fixed costs are better able to survive tough times than companies with higher fixed costs. True FalseTrue Reason: Companies with lower fixed costs have the ability to be more flexible to changes in market demand.On a CVP graph, the intercept of the total cost line is the ___________cost for the period.fixedWhen compared to the Cost-Volume-Profit graph, the ______ lines are collapsed on the Profit-Volume graph. cost and profit cost and revenue contribution margin and cost revenue and profitcost and revenueThe excess of the projected (or actual) sales over the break-even sales level is called the _________ __________ ________margin of safetyThe intercept of the profit-volume line equals the loss at zero volume, which equals ___________ ___________fixed costsGiven the following information, calculate margin of safety percentage: Actual sales $100,000 Contribution margin ratio .6 Fixed costs $30,000 50% 60% 40% 55%50% Reason: ($100,000 - ($30,000/.60))/$100,000An organization's ________ _____________ is the proportion of fixed and variable costs to total costscost structurehe extent that an organization's cost structure is made up of fixed costs is called ___________ __________operating leverageCompanies A and B have the same total revenues and operating profits. Company A has a contribution margin ratio of 30% and Company B has a contribution margin ratio of 40%. Which of the following statements is true? If sales increase by 10%, Company B will have a higher increase in profits than Company A. If sales fall, Company B will experience a lower decrease in profits than Company A. A change in sales (increase or decrease) will have the same impact on both companies.If sales increase by 10%, Company B will have a higher increase in profits than Company A.Given the following information, calculate the margin of safety: Sales $100,000 Fixed costs $30,000 Variable costs $60,000 $75,000 $10,000 $25,000 $50,000$25,000 Reason: Contribution Margin Ratio = ($100,000 - $60,000)÷$100,000 =0.40 Margin of safety = $100,000 - ($30,000 ÷ 0.40)Given current sales of $120,000 and a margin of safety of 12%, sales can fall a total of $ _____________ before the company finds itself operating at a loss.14,400 ($120,000 x 12%)A company that is capital intensive has a cost structure with a high proportion of ___________ costsfixedMargin of safety = Sales volume - Break-even sales volume Sales volume - Total contribution margin Break-even sales volume - Sales volume Sales volume - Operating profitsSales volume - Break-even sales volumeContribution margin divided by operating profit = __________ __________operating leverageA company that is labor intensive has a cost structure with a high proportion of __________ costsvariable