CH 6

Question 1

Cost Structure?

Answer 1

○ Relative proportion of fixed and variable costs in an organization.

Question 2

When is there a LOSS for the period?

Answer 2

Where contribution margin is not sufficient to cover fixed expenses

Question 3

Profit = : with “sales” in equation

Answer 3

(Sales - Variable Expenses) - Fixed Expenses

Question 4

Profit= : with “Unit CM” in equation

Answer 4

Unit CM x Q(uantity) - Fixed Expenses

Question 5

What is the Cost-volume-profit (CVP) Graph

Answer 5

A graph of the relationships between an org’s revenues, costs, and profits on the y axis and its sales volume on the x axis

Question 6

Break Even Point?

Answer 6

where total revenue and total expense lines cross OR when Profit equals 0

Question 7

If sales BELOW break even point, then it means…

Answer 7

Company suffers a loss

Question 8

Contribution Margin Ratio (Equation) + what does it track?

Answer 8

CM/Sales
–> what percentage of sales becomes CM

Question 9

Variable Expense Ratio (Equation)

Answer 9

Variable Expenses/Sales

Question 10

Change in CM (Equation)

Answer 10

CM Ratio X Change in Sales

Question 11

What does a CM ratio of 40% mean

Answer 11

for each $ increase of sales, total contribution margin will increase by 40 cents

Question 12

Profit=: with “CM ratio”

Answer 12

CM ratio x Sales - Fixed Expenses

Question 13

Change in Profit =:

Answer 13

CM Ratio x Change in Sales - Change in Fixed Expenses

Question 14

“Unit” Sales to break even = ?

Answer 14

Fixed Sales/Unit CM

Question 15

“Dollar” Sales to Break Even =?

Answer 15

Fixed expenses/CM Ratio

Question 16

Unit sales to attain target product =?

Answer 16

(Target Profit + Fixed Expenses)/Unit CM

Question 17

Dollar Sales to attain target product =?

Answer 17

(Target Profit + fixed expenses)/CM Ratio

Question 18

Margin of Safety def?

Answer 18

The excess of budgeted or actual dollar sales over the break-even dollar sales

Question 19

Margin of safety in dollars =

Answer 19

Total budgeted/actual sales - break even sales

Question 20

Margin of safety %age =

Answer 20

Margin of safety in dollars/total budgeted or actual sales in dollars

Question 21

Operating Leverage (OL)

Answer 21

A measure of how sensitive net operating income is to a given percentage change in unit sales.

Question 22

If OL is hight, then a small Increase in unit sales will produce…

Answer 22

a much larger %age change in net operating income

Question 23

Degree of OL (Equa) =

Answer 23

Contribution margin/net operating income

Question 24

%age change in net operating income (Equa) =

Answer 24

Degree of OL x %age change in sales

Question 25

Sales Mix?

Answer 25

relative proportions in which a company’s products are sold