A. Cost-Volume-Profit (CVP) Review. 1. CVP income statement format is used for 2. The CVP income statement classifies costs and expenses as and reports 3. Contribution margin is and stated is B. Sales Mix 1. When a company sells many products, it is important that managers understand the company's sales mix. 2. Sales mix is a) It is important to managers because b) Provide an example of Sales mix 3. Break-even sales in units can be computed for a mix of two or more products by a. The weighted-average unit contribution margin is computed as: c. At any level of units sold, net income will be greater if d. A shift from low-margin sales to high-margin sales may net income even though there may be a in total units sold. Conversely, a shift from high- to low-margin sales may result in a decrease in net income, even though there may be an increase in total units sold. 4. The calculation of the break-even point in units works well if a company has only a small number of products. In a company with many products, break- even sales in dollars is calculated using the a. The break-even point in dollars is computed by b. The weighted-average contribution margin ratio is computed as: c. If a company changes its sales mix so that a higher percentage of the company's sales come from a division with a higher contribution margin ratio, the weighted-average contribution margin ratio would which in turn would lower the C. Limited Resources. 1. When a company has limited resources (i.e., machine hours), it is necessary find to 2. Contribution margin per unit of limited resource is computed for each product. 3. The contribution margin per unit of limited resource is then multiplied by the determine total contribution margin and which product maximizes net income. to 4. As discussed in Chapter 1, evaluating constraints is called the theory of constraints. According to this theory, companies must continually identify their D. Cost Structure and Operating Leverage. 1. Cost structure is the 2. Cost structure can have a significant effect on 3. Operating leverage IS 4. Operating leverage is determined by a company's a. Companies with high fixed costs relative to variable costs have b. When a company's sales revenue is increasing, high operating leverage leverage is good because However, when sales are declining, too much operating leverage can 5. The degree of operating leverage provides a measure of a company's earnings Degree of operating leverage is computed by 6. A cost structure that relies on higher fixed costs, and consequently has higher operating leverage, is not necessarily bad. Operating leverage can add considerably to a company's profitability when used carefully