Posted: January 6th, 2017

Sales volume (in dollars) required to earn an annual operating income of $440,000.

Listed below are nine technical accounting terms introduced in this chapter:

Variable costs

Relevant range

Contribution margin

Break-even point

Fixed costs

Semivariable costs

Economies of scale

Sales mix

Unit contribution margin

Each of the following statements may (or may not) describe one of these technical terms. For each

statement, indicate the accounting term described, or answer “None” if the statement does not correctly

describe any of the terms.

a. The level of sales at which revenue exactly equals costs and expenses.

b. Costs that remain unchanged despite changes in sales volume.

c. The span over which output is likely to vary and assumptions about cost behavior generally

remain valid.

d. Sales revenue less variable costs and expenses.

e. Unit sales price minus variable cost per unit.

f. The reduction in unit cost achieved from a higher level of output.

g. Costs that respond to changes in sales volume by less than a proportionate amount.

h. Operating income less variable costs.

EXERCISE 20.7

MURDER TO GO! writes and manufactures murder mystery parlor games that it sells to retail stores. The following is per-unit information relating to the manufacture and sale of this product:

Unit sales price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30

Variable cost per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Fixed costs per year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360,000

Determine the following, showing as part of your answer the formula that you used in your computation.

For example, the formula used to determine the contribution margin ratio (part a ) is:

Contribution margin ratio.

b. Sales volume (in dollars) required to break even.

c. Sales volume (in dollars) required to earn an annual operating income of $440,000.

d. The margin of safety (in dollars) if annual sales total 60,000 units.

e. Operating income if annual sales total 60,000 units.