Contribution Margin Variance Iliff, Inc., produces and sells two types of counte

Question

Contribution Margin Variance

Iliff, Inc., produces and sells two types of countertop ovens—the toaster oven and the convection oven. Budgeted and actual data for the two models are shown below.

Budgeted Amounts:

Actual Amounts:

Required:

1. Calculate the contribution margin variance.
$ Unfavorable

Toaster
Oven Convection
Oven Total Sales:     ($90 × 25,000) $2,250,000       ($150 × 15,000) $2,250,000   $4,500,000   Variable expenses 500,000   750,000   1,250,000       Contribution margin $1,750,000   $1,500,000   $3,250,000  

Explanation / Answer

contribution margin variance = ( Actual CM per unit - Budgeted CM per unit ) * Actual sales

Actual CM per unit for toaster = 1728600 / 25800 units = $ 67

Actual CM per unit for convection = 1498000 / 14000 units = $ 107

Budgeted CM per unit for toaster = 1750000 / 25000 units = $ 70

Budgeted CM per unit for convection = 1500000 / 15000 units = $ 100

contribution margin variance for toaster = ( 67 - 70 ) * 25800 = $ 77400 ( unfav. )

contribution margin variance for convection = ( 107 - 100 ) * 14000 = $ 98000 ( fav. )

contribution margin variance as a whole = $ 77400 ( unfav. ) - $ 98000 ( fav. )

= $ 20600 ( fav.)

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