chapter 6 powerpoint CVP:

Question 1

Cost-volume-profit (CVP) analysis

Answer 1

the study of the effects that changes in costs and volume have on a company’s profits

Question 2

contribution margin ratio

Answer 2

the contribution margin per unit divided by the unit selling price

Question 3

why do managers often prefer using the contribution margin ratio?

Answer 3

it tells you the amount needed in sales to cover the break even point

also beneficial in finding the effect of a change in sales on operating income

Question 4

how much will OI change if sales increase by $100,000 with a CMR ratio of 40%

Answer 4

operating income will increase by$40,000 (40% × $100,000)

Question 5

how can you calculate the break even analysis?

Answer 5

1. calculated with a mathematical equation,
2. calculated by using the contribution margin
3. derived from a cost-volume-profit (CVP) graph.

Question 6

mathematical equation to find break even point

Answer 6

Qselling price - Qvariable costs

= fixed costs

it gives quantity needed to find the break even

Question 7

can you use mathematical equation to find target operating income?

Answer 7

ye boy

just do the same, but add target OI to fixed costs

it will give quantity of products needed to sell to achieve such level

Question 8

Contribution Margin Technique to find break even

Answer 8

FC / CM per unit

= break even in units

Question 9

Contribution Margin Ratio Technique to find break even

Answer 9

FC / CMR per unit

= break even in sales

Question 10

how do you find income after tax

Answer 10

first find income before tax equivalent to it

=> Income before tax = income after tax / (1-tax rate)

Question 11

margin of safety formula

Answer 11

actual (expected sales) - break even sales

= margin of safety in $

Question 12

margin of safety ratio formula

Answer 12

margin of safety in $ / actual (expected sales)

Question 13

sales mix

Answer 13

the relative proportion in which each product is sold when a company sells more than one product

Question 14

weighted average unit contribution margin formula

Answer 14

Unit CM product 1 * Sales mix percentage product 1

+ Unit CM product 2 * Sales mix percentage product 2

Question 15

break even point in units formula for companies selling more than 1 product

Answer 15

fixed costs / weighted average unit contribution margin

Question 16

weighted average contribution margin ratio formula

Answer 16

CMR product 1 * Sales mix percentage product 1

• CMR product 2 * Sales mix percentage product 2

Question 17

break even point in $$ formula for companies selling more than 1 product

Answer 17

fixed costs / weighted average contribution margin ratio formula

Question 18

cost structure

Answer 18

relative proportion of fixed versus variable costs that a company incurs

Question 19

can cost structure have a significant effect on a company’s profitability?

Answer 19

ye boooy

Question 20

what do changes in revenue do to companies with higher fixed costs and lower variable costs?

Answer 20

Changes in the revenues will affect the final income more significantly

If they go to loss, it is more dangerous because they need to pay the fixed cost anyways

If they go to profit, it is more profitable. Sometime a lot more

Question 21

Operating leverage

Answer 21

the extent to which a company’s operating income reacts to a given change in sales

measures the company’s sensitivity to changes in sales

Question 22

Operating leverageforumla

Answer 22

Contribution margin / net income

Question 23

true or false

Higher fixed cost => higher contribution margin => Bigger operating leverage

Answer 23

true