Contribution Margin Analysis Costello Industries Inc. manufactures only one prod

Question

Contribution Margin Analysis

Costello Industries Inc. manufactures only one product. For the year ended December 31, 2014, the contribution margin increased by $20,400 from the planned level of $545,200. The president of Costello Industries Inc. has expressed some concern about such a small increase and has requested a follow-up report.

The following data have been gathered from the accounting records for the year ended December 31, 2014:

Required:

1. Prepare a contribution margin analysis report for the year ended December 31, 2014.

Costello Industries Inc.

Contribution Margin Analysis

For the Year Ended December 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

  

Effect of changes in variable selling and administrative expenses:

Variable cost quantity factor

$  

Unit cost factor

  

Total effect of changes in variable selling and administrative expenses

  

Actual contribution margin

$  

Actual

Planned Difference—Increase (Decrease) Sales $1,090,800 $1,078,800 $12,000 Less: Variable cost of goods sold $414,100 $440,800 $-26,700 Variable selling and administrative expenses 111,100 92,800 18,300 Total $525,200 $533,600 $-8,400 Contribution margin $565,600 $545,200 $20,400 Number of units sold 10,100 11,600 Per unit: Sales price $108 $93 Variable cost of goods sold 41 38 Variable selling and administrative expenses 11 8

Explanation / Answer

Solution:

Costello Industries Inc. Contribution margin analysis Particulars Details Amount Planned contribution Margin $545,200.00 Effect of changes in Sales: Unit Price factor ($108-$93)*10100 $151,500.00 Sales Quantity Factor (10100 - 11600)*$93 -$139,500.00 Total effect of changes in sales $12,000.00 Effect of changes in variable cost of goods sold: Unit cost factor ($38 - $41)*10100 -$30,300.00 Variable cost quantity factor (11600-10100)*$38 $57,000.00 Total Effect of changes in variable cost of goods sold $26,700.00 Effect of changes in variable selling and adminstrative expenses: Unit cost factor ($8 - $11)*10100 -$30,300.00 Variable cost quantity factor (11600-10100)*$8 $12,000.00 Total Effect of changes in variable selling and administrative expenses -$18,300.00 Increase in contribution margin from change in variable cost $8,400.00 Total increase in contribution margin $20,400.00 Actual contribution margin $565,600.00

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