Chapter 5

Question 1

variable expense ratio

Answer 1

variable expenses/sales put as %

Question 2

Contribution Margin ratio %

Answer 2

Contribution Margin (sales-variable expenses)/sales

Question 3

profits are affected by the following five factors:

Answer 3

Selling prices
sales volume 
unit variable costs
total fixed costs 
mix of products sold

Question 4

contribution income statement accounts

Answer 4

1. sales
2. variable expenses (per unit)
3. contribution margin (sales - variable expenses)
4. Fixed expenses
5. Net operating income

Question 5

what tool can be sued to easily calculate the change in profit resulting from a change in sales, price, sales volume, variable costs or fixed costs.

Answer 5

CVP analysis: this allows companies to easily identify the change in profit due to changes in cost volume and selling price

Question 6

the break even point is reached when…

Answer 6

contribution margin (sales minus variable costs) = fixed expenses

Question 7

what is the profit formula?

Answer 7

profit= (sales-variable expenses) - fixed expenses

Question 8

what is unit CM

Answer 8

Selling price per unit- variable expenses per unit.

contribution margin by unit. instead of multiplying the units by selling price and then the variable expenses by units and then subtracting them, you could find the CM by unit and multiply it by the units.

Question 9

net operating income can be calculated as

Answer 9

(unit sales - unit sales to break even) x unit contribution margin

Question 10

how to calculate a change net profit when you increase or decrease your unit sales

Answer 10

((sales-variable costs)/ # of units) * the amount of units increased or decreased.

Question 11

CM Ratio

Answer 11

Contribution margin (Sales-Variable Costs)/Sales

Question 12

Profit

Answer 12

CM Ratio*Sales-Fixed Expenses

Question 13

Variable expense ratio

Answer 13

Variable Expenses/sales

Question 14

Break Even Analysis

Answer 14

you can find the break-even Analysis by making sure that Sales-Variable expenses = Fixed expenses

Question 15

Unit Sales to Break Even

Answer 15

fixed expenses / unit cm

Question 16

Dollar Sales to break even=

Answer 16

fixed expenses / cm ratio

Question 17

unit sales to attain the target profit=

Answer 17

(target profit + fixed expenses) / unit cm

Question 18

Dollar sales to attain the target proft

Answer 18

(target profit + Fixed Expenses) / CM ratio

Question 19

equation method to comput unit sales to achieve a target profit

Answer 19

(Unit contribution margin x Unit sales) - Fixed Expense

Question 20

% change in Net operating income

Answer 20

degree of operating leverage x percentage change in sales

Question 21

Degree of operating leverage=

Answer 21

Contribution Margin / net operating income

Question 22

Operating leverage is t

Answer 22

a measure of how sensitive net operating income is to a given percentage change in sales dollars

Question 23

Sales mix

Answer 23

A change in the sales mix will most likely change the break-even point

Question 24

Margin of safety

Answer 24

the amount that you have after you have broke even with sales
or
the amount by which sales can drop before losses are incurred

Question 25

Margin of safety equation

Answer 25

margin of safety in Dollars / by the budgeted or actual sales in dollars