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 $25,300 from the planned level of $1,290,300. 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?

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Actual Planned Increase or (Decrease) Sales $1,315,600 $1,290,300 $25,300 Number of units sold 28,600 25,300 3,300 Sales price $46 $51 $(5) Variable cost per unit $8 $8 $0

Explanation / Answer

Select Audio Inc. Contribution Margin Analysis—Sales For the Year Ended December 31 Effect of change in sales: Sales quantity factor           1,68,300 Unit price factor         (1,43,000) Total effect of change in sales               25,300 Working Note: Planned Actual Qty Rate Amount Qty Rate Amount Sales               25,300               51        12,90,300          28,600               46          13,15,600                25,300 Sales Quantity Factor=Planned Rate*(Actual Quantity-Planned Qty) =51*(28600-25300)           1,68,300 Sales Rate Factor=Actual Quantity*(Planned rate-Actual Rate) =28600*(46-51)         (1,43,000) b Yes, reduction in price create additional volume of 3,300 and due to that increase in contribution 25,300

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