Midterm- quizlet - Lecture notes 1-7 PDF

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Three common assumptions of CVP 1. selling price is constant 2. costs are linear 3. multi-product companies, mix of products is constant Once a company reaches its breakeven point, net operating income will - increase by an amount equal to the CM per unit multiplied by the number of units sold above the break-even point The CM ratio always increases when - variable costs as a percentage of sales decrease Reason for target profit analysis - what sales volume is needed to achieve a specific target profit what is a benefit of having a high margin of safety and a low CM ratio - The firm will be less vulnerable to downturns - Profit will be less volatile - Can suffer larger sales decline before losses occur Effects of higher fixed costs and lower variable costs? - Firm will experience wider swings in net operating income as sales fluctuate - This means there will be greater profits, and greater losses depending on the year Effects of higher variable costs and lower fixed costs? - Greater profit stability - Protected from losses in bad years - lower net operating income in good years when is operating leverage greatest? - at sales levels near the break-even point Define sales mix - the relative proportions in which a company's products are sold. the idea is to achieve a mix that yields the biggest profits Which of the following is a major assumption that is used in cost volume profit analysis? a. all costs are categorized as product or period b. total contribution margin will change as volume changes c. variable costs change per unit d. fixed costs are constant per unit A company could never incur an operating loss greater than a. total costs b. total sales

c. total fixed costs d. total contribution margin The term relevant range means the range that a. variable costs are not relevant b. relevant costs are not incurred c. production volumes will remain constant d. fixed costs will not change within that range If the sales volume decreases and nothing else changes a. contribution margin per unit will increase b. margin of safety will decrease in units c. break-even will increase in units d. operating income will increase

Contribution margin is defined as a. the amount of sales revenue that is available to cover fixed costsx b. the amount of sales revenue that is available to cover variable costs c. sales less period costs d. fixed costs less variable cost When making a short term decision a. fixed costs are never relevant b. fixed costs are always relevant c. variable production costs are always relevant d. period costs are never relevant When the level of activity decreases within a relevant range a. fixed cost per unit will increase b. fixed cost in total will increase c. total variable costs in total will increase d. variable cost per unit will decrease...