Contribution Margin Analysis—Sales Select Audio Inc. sells electronic equipment.

Question

Contribution Margin Analysis—Sales

Select Audio Inc. sells electronic equipment. Management decided early in the year to reduce the price of the speakers in order to increase sales volume. As a result, for the year ended December 31, the sales increased by $19,100 from the planned level of $1,025,100. The following information is available from the accounting records for the year ended December 31.

a. Prepare an analysis of the sales quantity and unit price factors. Use a minus sign for any negative amounts.

b. Did the price decrease generate sufficient volume to result in a net increase in contribution margin if the actual variable cost per unit was $8, as planned?

Actual Planned Increase or (Decrease) Sales $1,044,200 $1,025,100 $19,100 Number of units sold 22,700 20,100 2,600 Sales price $46 $51 $(5) Variable cost per unit $8 $8 $0

Explanation / Answer

Answers

Sale Quantity Factor =(Actual Units - Planned units) x Planned sales price
= (22,700 – 20,100) x $51
= $ 132,600

Unit Price Factor = ( Actual Sales price – Planned Sales Price) x Actual units sold
= ($ 46 – $ 51) x 22,700
= $ (113,500)

Select Audio Inc.

Contribution Margin Analysis—Sales

For the Year Ended December 31

Effect of changes in sales:

Sales quantity factor

$                   132,600.00

Unit price factor

$                  (113,500.00)

Total effect of changes in sales

$           19,100.00

----Working----

Working

Actual

Planned

A

Sales

$                       1,044,200.00

$        1,025,100.00

B

Variable cost

$                           181,600.00

$             160,800.00

C=A-B

Contribution margin

$                           862,600.00

$             864,300.00

Answer: Actual Contribution margin ($862,600) is LOWER than Planned Contribution margin ($864,300), hence, Price decrease has not resulted in a net increase in Contribution margin.

Select Audio Inc.

Contribution Margin Analysis—Sales

For the Year Ended December 31

Effect of changes in sales:

Sales quantity factor

$                   132,600.00

Unit price factor

$                  (113,500.00)

Total effect of changes in sales

$           19,100.00

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