Contribution Margin Reporting and Analysis—Service Company The management of Eas
ID: 2448195 • Letter: C
Question
Contribution Margin Reporting and Analysis—Service Company
The management of East Coast Railroad Company improved the profitability of the Atlanta/Baltimore route in May by reducing the price of a railcar from $600 to $500. This price reduction increased the demand for rail services. Thus, the number of railcars increased by 275 railcars to a total of 700 railcars. This was accomplished by increasing the size of each train but not the number of trains. Thus, the number of train-miles was unchanged. All the activity rates remained unchanged.
Prepare a contribution margin analysis to evaluate management's actions in May. Assume that the May planned quantity, price, and unit cost was the same as April. If an amount is zero, enter "0".
East Coast Railroad Company
Contribution Margin Analysis—Atlanta/Baltimore Route
For the Month Ended May 31, 2014
Planned contribution margin
$
Effect of change in sales:
Sales quantity factor
$
Unit price factor
Total effect of change in sales
Effect of changes in variable cost of goods sold:
Variable cost quantity factor
$
Unit cost factor
Total effect of changes in variable cost of goods sold
Actual contribution margin
$
East Coast Railroad Company
Contribution Margin Analysis—Atlanta/Baltimore Route
For the Month Ended May 31, 2014
Planned contribution margin
$
Effect of change in sales:
Sales quantity factor
$
Unit price factor
Total effect of change in sales
Effect of changes in variable cost of goods sold:
Variable cost quantity factor
$
Unit cost factor
Total effect of changes in variable cost of goods sold
Actual contribution margin
$
Explanation / Answer
Planned revenue from the route: 425 x 600 = $255,000
Less: Variable Cost =
Contribution Margin Analysis:
Amount($) Labor Cost for loading 19,550 (46 x 425) Fuel Cost 159,154 (12,835 x 12.40) Train crew labor costs 92,412 (12,835 x 7.20) Switchyard Labor cost 13,175 (31 x 425) Total Variable cost 284,291Related Questions
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