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

Department

AccountingCourse Code

ACCT 2101Professor

juliechenierLecture

6LearnSmart Chapter 6: Cost-Value Profit Analysis

TRUE/ FALSE

1. CVP Analysis is only used for breakeven and target profit analysis:

FALSE

MULTIPLE CHOICE

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

volume

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

150,000/50,000=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:

$400,000

$180,000/0.45=400,000

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%

272,000/(100,000x17)=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

$25,000/$25=$1,000x0.65=650

$25,000/$25=$1,000x0.35=350

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%

$559,740/$2,946,000=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=

($28+$80,000+$60,000)=$490,000/(10,000x1.25)=$39.20

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

90,000x$7.50=$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

$98,000/($50-$15)=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

break-even

$30,000/$5,000=6000 units

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###### Document Summary

True/ false: cvp analysis is only used for breakeven and target profit analysis: Production volume is equal to sales volume in multi-product companies the sales mix is constant. Cvp analysis: cvp graph indicates: the breakeven point. ,000, and sales of ,000 has a degree of operating leverage of: 3. Learnsmart chapter 6: cost-value profit analysis: a company sells a product for per unit and has a contribution margin ratio of 45%. ,000/0. 45=400,000: multi-product target profit analysis: is calculated the same way as single product analysis. Depends upon the sales mix: a company sells its products for per unit. In order to reach their profit goal of. ,000, the company must sell 5,000 units of the product. (50,000+90,000)/(40-12)=5,000 units: jump-it corporation has a margin of safety of ,000. 272,000/(100,000x17)=16: the weighted average unit contribution margin: is used instead of the single product contribution margin. Of the sales, 65% are product xyz and 35% are product tdw.

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