Blue States Coffee, Inc., sells two types of coffee, Colombian and Blue Mountain

Question

Blue States Coffee, Inc., sells two types of coffee, Colombian and Blue Mountain. The monthly budget for U.S. coffee sales is based on a combination of last year's performance, a forecast of industry sales, and the company's expected share of the U.S. market. The following information is provided for March Actual Budget Colombian Blue Mountain Colombian Blue Mountain 15,000 Ibs. 17,000 Ibs. Sales in pounds 13,500 lbs. 18,000 lbs $16.00 9.00 $13.00 6.50 $16.00 9.00 S13.00 Price per pound Variable cost per pound 5.00 Contribution margin8.00 s700 Budgeted and actual fixed corporate-sustaining costs are S60,000 and $72,000, respectively Required a. Calculate the actual contribution margin for the month. b. Calculate the contribution margin for the static budget. c. Calculate the contribution margin for the flexible budget. d. Determine the total static-budget variance, the total flexible-budget variance, and the total sales-volume variance in terms of the contribution margin.

Explanation / Answer

Answer a.

Colombian:

Actual Sales in pounds = 15,000
Contribution Margin per pound = $8.00

Contribution Margin = Actual Sales in pounds * Contribution Margin per pound
Contribution Margin = 15,000 * $8.00
Contribution Margin = $120,000

Blue Mountain:

Actual Sales in pounds = 17,000
Contribution Margin per pound = $7.00

Contribution Margin = Actual Sales in pounds * Contribution Margin per pound
Contribution Margin = 17,000 * $7.00
Contribution Margin = $119,000

Actual Contribution Margin = Contribution Margin (Colombian) + Contribution Margin (Blue Mountain)
Actual Contribution Margin = $120,000 + $119,000
Actual Contribution Margin = $239,000

Answer b.

Budget Sales in pounds = 13,500
Contribution Margin per pound = $6.50

Contribution Margin = Budget Sales in pounds * Contribution Margin per pound
Contribution Margin = 13,500 * $6.50
Contribution Margin = $87,750

Blue Mountain:

Budget Sales in pounds = 18,000
Contribution Margin per pound = $7.00

Contribution Margin = Budget Sales in pounds * Contribution Margin per pound
Contribution Margin = 18,000 * $7.00
Contribution Margin = $126,000

Static Contribution Margin = Contribution Margin (Colombian) + Contribution Margin (Blue Mountain)
Static Contribution Margin = $87,750 + $126,000
Static Contribution Margin = $213,750

Answer c.

Actual Sales in pounds = 15,000
Contribution Margin per pound = $6.50

Contribution Margin = Actual Sales in pounds * Contribution Margin per pound
Contribution Margin = 15,000 * $6.50
Contribution Margin = $97,500

Blue Mountain:

Actual Sales in pounds = 17,000
Contribution Margin per pound = $7.00

Contribution Margin = Actual Sales in pounds * Contribution Margin per pound
Contribution Margin = 17,000 * $7.00
Contribution Margin = $119,000

Flexible Contribution Margin = Contribution Margin (Colombian) + Contribution Margin (Blue Mountain)
Flexible Contribution Margin = $97,500 + $119,000
Flexible Contribution Margin = $216,500

Answer d.

Static-budget Variance = Actual Contribution Margin - Static Contribution Margin
Static-budget Variance = $239,000 - $213,750
Static-budget Variance = $25,250 Favorable

Flexible-budget Variance = Actual Contribution Margin - Flexible Contribution Margin
Flexible-budget Variance = $239,000 - $216,500
Flexible-budget Variance = $22,500 Favorable

Sales-volume Variance = Flexible Contribution Margin - Static Contribution Margin
Sales-volume Variance = $216,500 - $213,750
Sales-volume Variance = $2,750 Favorable

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