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Chapter 20: Q26RQ (page 1120)
How can CVP analysis be used by companies with multiple products?
The combination of products used that sums up total sales is known as the sales mix.
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Using terminology Match the following terms with the correct definitions:
1. Costs that do not change in total over wide ranges of volume.
2. Technique that estimates profit or loss results when conditions change.
3. The sales level at which operating income is zero.
4. Drop in sales a company can absorb without incurring an operating loss.
5. Combination of products that make up total sales.
6. Net sales revenue minus variable costs.
7. Describes how a cost changes as volume changes.
8. Costs that change in total in direct proportion to changes in volume.
9. The band of volume where total fixed costs and variable cost per unit remain constant.
a. Breakeven point
b. Contribution margin
c. Cost behavior
d. Margin of safety
e. Relevant range
f. Sales mix
g. Fixed costs
h. Variable costs
i. Sensitivity analysis
Calculating contribution margin ratio, preparing contribution margin income statements For its top managers, Worldwide Travel formats its income statement as follows:
Worldwide鈥檚 relevant range is between sales of \(253,000 and \)368,000. Requirements
1. Calculate the contribution margin ratio.
2. Prepare two contribution margin income statements: one at the \(253,000 sales level and one at the \)368,000 sales level. (Hint: The proportion of each sales dollar that goes toward variable costs is constant within the relevant range.)
Question: Computing contribution margin in total, per unit, and as a ratio
Complete the table below for contribution margin per unit, total contribution margin, and contribution margin ratio:
A B C Number of units 1,720 units 14,920 units 4,620 units
Sales price per unit \( 1,800 \) 4,500 $ 5,550
Variable costs per unit 720 3,600 1,665
Calculate: 鈥冣�冣�� 鈥� 鈥冣�冣�� 鈥冣�冣�� 鈥� 鈥�
Contribution margin per unit 鈥冣�冣�� 鈥冣�冣�� 鈥� 鈥冣�冣�� 鈥冣�冣�� 鈥� 鈥�
Total contribution margin 鈥冣�冣�� 鈥冣�冣�� 鈥� 鈥冣�冣�� 鈥� 鈥冣�冣�� 鈥� 鈥�
Contribution margin ratio
A furniture manufacturer specializes in wood tables. The tables sell for \(100 per unit and incur \)40 per unit in variable costs. The company has \(6,000 in fixed costs per month. The company desires to earn an operating profit of \)12,000 per month.
10. Calculate the required sales in units to earn the target profit using the equation method.
11. Calculate the required sales in units to earn the target profit using the contribution margin method.
12. Calculate the required sales in dollars to earn the target profit using the contribution margin ratio method.
13. Calculate the required sales in units to break even using the contribution margin method.
What is a variable cost? Give an example.
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