ACCCOB3

• What is the selling price of each speaker sold by Acoustic Concepts?


  $250
• Why does Prem consider lowering the selling price of the speaker?


  To boost sales volume
• What is the relationship between selling price, costs, and volume according to Bob?


  They are all interrelated
• What is the total sales revenue for Acoustic Concepts for the month of June?


  $100,000
• What are the variable expenses for Acoustic Concepts for the month of June?


  $60,000
• What is the contribution margin for Acoustic Concepts for the month of June?


  $40,000
• How is the contribution margin defined?


  It is the amount remaining from sales revenue after variable expenses have been deducted
• What happens if the contribution margin is not sufficient to cover fixed expenses?


  A loss occurs for the period
• How much contribution margin is available for each additional speaker sold?


  $100
• What is the break-even point for Acoustic Concepts in terms of the number of speakers sold?


  350 speakers
• What does the break-even point represent?


  The level of sales at which profit is zero
• If 351 speakers are sold, what will be the net operating income for the month?


  $100
• How is profit estimated at any sales volume above the break-even point?


  Multiply the number of units sold in excess of the break-even point by the unit contribution margin
• What is the formula for profit in terms of unit contribution margin?


  Profit = Unit CM × Q − Fixed expenses
• What is the profit when 600 speakers are sold?


  $25,000
• What does the profit graph illustrate?


  The relationships among revenue, cost, profit, and volume
• What are the two ratios defined in the section on Contribution Margin Ratio and Variable Expense Ratio?


  Contribution margin ratio and variable expense ratio
• What are the steps to prepare a CVP graph?


  1. Draw a line for total fixed expenses.
  2. Plot total expenses at a chosen sales volume.
  3. Plot total sales dollars at the same sales volume.
• How does the profit graph indicate profit or loss at different sales volumes?


  • Profit is indicated by the vertical distance between total revenue and total expense lines.
  • Loss occurs when total expenses exceed total revenue.
• What is the significance of the break-even point on the profit graph?


  • It is where profit is zero.
  • It indicates the sales volume needed to cover all costs.
• What does the contribution margin ratio represent?


  • It shows the percentage of each sales dollar that contributes to covering fixed costs and generating profit.
• What is the variable expense ratio?


  • It represents the percentage of each sales dollar that is consumed by variable expenses.
• How does the CVP graph help in decision-making?


  • It visually represents the relationships between costs, volume, and profit.
  • It aids in understanding the impact of changes in sales volume on profitability.
• What does the vertical distance between the total revenue line and the total expense line represent in a CVP graph?


  It measures the anticipated profit or loss at any given level of sales.
• What is the fixed expense amount for Acoustic Concepts?


  $35,000
• How is the variable expense calculated for 600 speakers at $150 per speaker?


  $90,000
• How do you estimate the effect of a planned increase in sales volume on profits?


  Multiply the increase in units sold by the unit contribution margin.
• If Acoustic Concepts plans to increase sales from 400 to 425 speakers, how many additional speakers will be sold?


  25 speakers
• What happens to the company's loss when sales are zero?


  The company's loss would equal its fixed expenses.
• What is the contribution format income statement equation?


  Profit = (Sales − Variable expenses) − Fixed expenses
• How can the sales be expressed in equation form for a single product company?

  Sales = Selling price per unit × Quantity sold = P × Q
• How is the variable expenses calculated in equation form?

  Variable expenses = Variable expenses per unit × Quantity sold = V × Q
• What is the profit when selling 351 speakers at a selling price of $250 and variable expense of $150?


  $100
• How is the contribution margin calculated for 351 speakers?


  Profit = ($250 × 351 − $150 × 351) − $35,000
• What is the contribution margin per speaker for Acoustic Concepts?


  $100
• How much will the increase in net operating income be if 25 additional speakers are sold at a contribution margin of $100 each?


  $2,500
• What are the key components of Acoustic Concepts' contribution format income statement?


  • Sales: $100,000
  • Variable expenses: $60,000
  • Contribution margin: $40,000
  • Fixed expenses: $35,000
  • Net operating income: $5,000
• What is the contribution margin ratio (CM ratio) for Acoustic Concepts?


  40%
• How is the contribution margin ratio calculated?


  CM ratio = Contribution margin / Sales
• What is the variable expense ratio for Acoustic Concepts?


  60%