# Chapter 5 - Cost-Volume-Profit Relationships Flashcards

What is the format of the contribution income statement?

Sales Less: Variable Expense Contribution Margin Less: Fixed Expense Net Operating Income

What is the equation to find the contribution margin?

Sales - variables expense

What is the equation to find the contribution margin per unit?

Sales per unit - variable expense per unit

What is the equation to find the net operating income?

Contribution margin - fixed expense

What is helpful to managers in judging the impact on profits of changes in selling price, cost, or volume?

The contribution income statement

What does the contribution income statement emphasize?

Cost behavior

What is the amount remaining from sales revenue after variable expenses have been deducted?

Contribution Margin

What is the level of sales at which profit is zero?

The break-even point

Fill in the Blanks:

The break-even point is the point at which ________________

Contribution margin = fixed expense

If a company is at the break-even point how much will their net operating income increase by if they sell on more unit?

It will increase by the amount of contribution margin per unit

What do you use to compute changes in contribution margin and net operating income resulting from changes in sales volume?

The contribution margin ratio

What is referred to as the contribution margin as a percentage of sales?

The contribution margin ratio

What are the 2 formulas to find the CM ratio?

- (CM per U/Sales per U) x 100

2. (CM/Sales) x 100

What is referred to as the variable expense as a percentage of sales?

The variable expense ratio

What is the formula to find the VE ratio?

(VE/S) x 100

Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. An average of 2,100 cups are sold each month. What is the CM Ratio for Coffee Klatch?

A. 1.319

B. 0.758

C. 0.242

D. 4.139

B. 0.758

CM per U = SP per U - VE per U CM per U = 1.49 - .36 = 1.13 CM ratio = CM per U/SP per U CM ratio = 1.13/1.49 CM ratio = 0.758

What is the formula to find the break-even point in unit sales?

FE/CM per unit

What is the formula to find the break-even point in dollar sales?

FE/CM ratio

Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. An average of 2,100 cups are sold each month. What is the break-even sales dollars?

A. $1,300

B. $1,715

C. $1,788

D. $3,129

B. $1,715

FE/CM ratio

1,300/0.758 = 1,715

Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. An average of 2,100 cups are sold each month. What is the break-even sales in units?

A. 872 cups

B. 3,611 cups

C. 1,200 cups

D. 1,150 cups

D. 1,150 cups

FE/CM per unit

FE/(SP - VE)

1,300/(1.49 - .36) = 1,150