General Terms
This is the definition of a common fixed cost
a. The costs that only arise due to the existence of a particular segment
This is the formula used to figure out how much sales we need to attain a specific target profit.
b. (Fixed expenses + Target Profit)/CM Ratio
This is how to calculate a segment margin.
c. Contribution Margin - Traceable Fixed Costs
This is the formula we use to calculate the change in profit in unit sales.
d. Unit CM * Change in Units
This is the formula needed to calculate the margin of safety.
c. Total sales - Break-even Sales
This is the definition of a common fixed cost.
b. costs that deal with the firm’s operations as a whole
This is the formula we use to calculate the break-even point in dollar sales.
a. (Fixed Expenses + 0)/CM Ratio
If Segment A has:
Sales = $500,000
Variable Expenses = $300,000
Traceable Fixed Expenses = $150,000
This is the segment margin.
a. $50,000
Suppose that a firm sells 12,000 units of product. If the company increases its sales volume by 4,000 units as well as increase their advertising budget by $60,000, what is the change in net operating income? Assume that the company has sales of $480,000 and variable expenses of $120,000.
c. $60,000
This is the formula to calculate the degree of operating leverage.
b. Contribution Margin/Net Operating Income
This is what the break even point is.
d. The bare minimum amount of units and/or sales needed to make a profit
A firm would like to attain a target profit of $50,000. They have fixed expenses of $30,000, a selling price of $70, and a unit variable expense of $30. What is the amount of unit sales needed to attain this profit?
b. 2,000 units
This is how we calculate the break-even point for a specific segment (assume dollar sales).
c. (Traceable Fixed Costs)/Segment CM Ratio
Assume a firm has $106,000 in sales and $63,600 in variable expenses.
If the company can sell more units, thereby increasing sales by $80,000 per month, and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?
b. $32,000
This is the formula we use to calculate % change in profits.
c. % change in sales * Degree of operating leverage
This is what margin of safety means.
c. The amount that a firm can afford to lose before no longer making a profit
A firm has total fixed expenses of $125,000. They also have sales revenue of $600,000, variable expenses of $400,000 and sold 100,000 units. Calculate the break-even point in unit sales.
b. 62,500 units
If Segment B has:
Sales = $800,000
Variable Expenses = $480,000
Traceable Fixed Expenses = $250,000
Calculate the segment margin.
b. $70,000
Assume a firm has $150,000 in sales and $90,000 in variable expenses.
If the company can sell more units, thereby increasing sales by $50,000 per month, and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?
a. $20,000
A firm has actual sales of $500,000. They also have fixed expenses of $100,000 and variable expenses of $300,000. This is their margin of safety.
a. $250,000
This is what the degree of operating leverage is.
b. The amount which measures the sensitivity of net operating income to a % change in profits
A firm would like to attain a target profit of $100,000. They have fixed expenses of $50,000, Sales revenue of $800,000, and Variable Expenses of $200,000. What is the amount of dollar sales needed to attain this profit?
b. $200,000
If Segment C has:
Sales = $650,000
Variable Expenses = $390,000
Traceable Fixed Expenses = $300,000
b. -$40,000
Assume a firm has $240,000 in sales and $168,000 in variable expenses.
If the company can increase sales by $60,000 per month, and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?
a. $18,000
A firm has sales revenue of $750,000, variable expenses of $150,000. The firm also has $300,000 in fixed costs. Calculate the degree of operating leverage.
a. 2