ACC 406 Chapter 4: Chapter 4

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pearsquirrel474

6 Feb 2012

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Acc 406 chapter 4 -- cost-volume-profit analysis: a managerial planning tool. Break-even point in units and in sales dollars: Cost-volume profit (cvp): estimates how changes in costs, sales volume, and prif e affect a company"s profit. Break-even profit: is the point where total revnue equals total cost (the point of zero profit) Can address: # of units that must be sold to break even; impact of a gi ven reduction in fixed costs on the break even point, impact of an increase in p rice on profit. Seperate expenses by fixed and variable, rather than by function (manufacturing expense, selling expense, etc. ) Contribution margin: difference between sales and variable expense. It is the amount of sales revenue left over after all the var exp are c overed an can be used for fixed exp. Contribution margin income statement: income statement based on seperation of c osts into fixed and variable.

Related Questions

On a contribution margin income statement, sales revenue less variable expenses equals

a. gross profit

b. contribution margin

c. operating expenses

d. operating income

tancod703

Oslo Company prepared the following contribution format Income Statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units):

Sales $20,000

Variable Expense ($12,000)

Contribution Margin $ 8,000

Fixed Expenses ($6, 000)

Net Operating Income $2, 000

Required:

1. What is the contribution margin per unit?

2. What is the contribution margin ratio?

3. What is the variable expense ratio?

4. If sales increase to 1,001 units, what would be the net operating income?

5. If sales decline to 900 units, what would be the net operating income?

6. If the selling price increase by $2 per unit and the sales volume decreases by 100 units, what would be the net operating income?

7. If the variable cost per unit increases by $1, spending on advertising increases by $1,500, and unit sales increases by 250 units. What would be the net operating income?

8. What is the break-even point in unit sales?

9. What is the break-even point in dollar sales?

10. How many units must be sold to achieve a target profit of $5,000?

11. What is the margin of safety in dollars? What is the margin of safety percentage?

12. What is the degree of operating leverage?

13. Using the degree of operating leverage, what is the estimated percentage increase in net operating income of a 5% increase in sales?

14. Assume that the amounts of the company's total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $6,00 and the total fixed expenses are $12,000. Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage?

15. Using the degree of operating leverage that you compute in the previous question, what is the estimated percentage increase in net operating income of a 5$ increase in sales?

harlequinotter996

A company produces memory enhancement kits for fax machines. Saleshave been very erratic, with some months showing a profit and somemonths showing a loss. The company's contribution format incomestatement for the most recent month is given below:


Sales (12,600 units at $40 per unit)	$	504,000
Variable expenses		252,000

Contribution margin		252,000
Fixed expenses		282,000

Net operating loss	$	(30,000)

Required:
1.	Compute the company's CM ratio and its break-even point in bothunits and dollars.


CM ratio	%
Break-even point in units
Break-even point in dollars	$

The sales manager feels that an $6,700 increase in the monthlyadvertising budget, combined with an intensified effort by thesales staff, will result in a $81,000 increase in monthly sales. Ifthe sales manager is right, what will the revised net operatingincome or loss? (Use the incremental approach in preparing youranswer.)

(Click to select)Net operating lossNet operating incomeis

3.	Refer to the original data. The president is convinced that a 10%reduction in the selling price, combined with an increase of$37,000 in the monthly advertising budget, will double unit sales.What will the new contribution format income statement look like ifthese changes are adopted?

Contribution Income Statement
(Click to select)Net operating income (loss)SalesFixedexpensesContribution marginVariable expenses	$
(Click to select)Contribution marginSalesVariableexpensesNet operating income (loss)Fixed expenses

(Click to select)Net operating income (loss)VariableexpensesContribution marginSalesFixed expenses
(Click to select)Variable expensesContributionmarginNet operating income (loss)Fixed expensesSales

(Click to select)SalesVariable expensesNet operatingincome (loss)Fixed expensesContribution margin	$

4.	Refer to the original data. The company

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ACC 406 Chapter 4: Chapter 4

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