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Lecture 6

ACCT 2101 Lecture Notes - Lecture 6: Contribution Margin, Earnings Before Interest And Taxes, Tdw

Course Code
ACCT 2101

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LearnSmart Chapter 6: Cost-Value Profit Analysis
1. CVP Analysis is only used for breakeven and target profit analysis:
2. Which of the following are assumptions of cost volume profit analysis?:
Production volume is equal to sales volume
in multi-product companies the sales mix is constant
all costs can be classified as either fixed or variable
3. When constructing a CVP graph, the horizontal (x) axis represents unit of
4. Which tool can be used to easily calculate the changes in profit resulting
from a change in sales price, sales volume, variable costs, or fixed cost?:
CVP analysis
5. CVP Graph indicates:
the breakeven point
profit equals zero
6. When a company increases the selling price of a product with no change
in variable cost per unit or total fixed costs, the breakeven point for that
product will: decrease
7. A firm that has a net operating income of $50,000, a contribution margin of
$150,000, and sales of $300,000 has a degree of operating leverage of: 3
8. When multiple products are sold, the breakeven point depends on the
product mix
9. Which of the following must be subtracted from sales to reach the
contribution margin?:
Variable manufacturing costs
variable selling and administrative costs
10. According to the assumptions of CVP, which of the following will NOT
change as the volume of a product increases or decreases?: price
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LearnSmart Chapter 6: Cost-Value Profit Analysis
11. A company sells a product for $80 per unit and has a contribution margin
ratio of 45%. Fixed costs total $180,000. Sales dollar to breakeven equals:
12. Multi-product target profit analysis:
is calculated the same way as single product analysis
depends upon the sales mix
13. A company sells its products for $40 per unit. Variable costs are $12 per
unit. Total fixed costs are $50,000. In order to reach their profit goal of
$90,000, the company must sell 5,000 units of the product.
(50,000+90,000)/(40-12)=5,000 units
14. Jump-It Corporation has a margin of safety of $272,000. The company
sold 100,000 units this year. If the company sells each unit for $17, what is
the margin of safety percentage?: 16%
15. The weighted average unit contribution margin:
assumes that the percentage of each product sold is constant
is used instead of the single product contribution margin
is multi-product breakeven analysis
is based on the relevant percentage of each unit sold
16. A company has fixed costs of $25,000 and a weighted average unit
contribution margin of $25. Of the sales, 65% are product XYZ and 35%
are product TDW. In order to breakeven the company must sell 650 units
of product XYZ and 350 units of product TDW
17. Which of the following is the equation used to calculate the degree of
operating leverage?:
Degree of operating leverage=Contribution margin/net
operating income
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LearnSmart Chapter 6: Cost-Value Profit Analysis
18. Decisions about whether to use fixed or variable costs to run a business
impact a company’s: operating leverage
19. The equation used to calculate margin of safety in dollars is: Budgeted
(or actual) sales minus break-even sales
20. 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%
21. Jacki’s Jewels sells 10,000 necklace & earring sets per year. Her fixed
costs are $80,000 and variable costs are $20 per set. Jacki is planning to
increase the quality of the stones which will increase variable costs by $8
per set. She expects that sales will increase by 25%. If Jacki increases the
quality of the stones, what price will she need to charge to attain her target
profit of $60,000 per year for this set?: $39.20
Cost+Target Profit=
22. In order to reach a target profit of $180,000, 90,000 units need to be sold.
Assuming each unit sells for $7.50, the total sales dollars needed to reach
the target profit is $675,000
23. 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
24. Given fixed costs of $30,000, variable costs of $2.00 per unit, and a
contribution margin of $5.00 unit, 6,000 units have to be sold in order to
$30,000/$5,000=6000 units
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