ACCT620Chapter6

ACCT620Chapter6 - CHAPTER6...

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CHAPTER 6 FINANCIAL MODELING FOR SHORT-TERM DECISION MAKING Questions, Exercises, Problems, and Cases:  Answers and Solutions 6.1 See text or glossary at the end of the book. 6.2 Operating profit = Sales revenue – Variable cost – Fixed cost 6.3 The   unit  contribution   margin  is   the  excess   of   the   unit   price  over   the   unit  variable costs.  The total contribution margin is the excess of total revenue over  total variable costs. 6.4 Assumptions: 1. Revenues change proportionately with volume. 2. Variable costs change proportionately with volume. 3. Fixed costs do not change at all with volume. (Other assumptions may include constant product mix and/or all CVP costs are  expensed.) 6-1 Solutions
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6.5 Question Breakeven Point Unit Contribution Expected                                                                                   Margin                         Total Profit         a. Raises. No Effect. Decreases. The contribution More of the  margin (denom- contribution inator) is fixed margin  while fixed costs must be  (numerator) are used to  increased. cover fixed                                                                                                                                                                                        costs.                   b. Lowers. Increases. Increases. A decrease in variable costs per unit in- creases contri- bution margin                                          per unit.                                                                                                                                                         c. Lowers. Increases. Increases. Increasing sales  price increases contribution                                         margin.                                                                                                                                                                              d.                             No Effect.                                               No Effect.                                               Increases.               e. Raises. No Effect. Decreases.
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