Question.1 . A favorable sales price variancemeans
A. The cost of products have decreased increasing the profit forthe product
B. The company sales price decreased causing more products to besold
C. The actual selling price is greater than what was budgeted
D. The company has sold more products than what wasexpected
Question 2 . An unfavorable sale quantityvariance reflects
A. . Fewer units sold than budgeted
B. An increase in the number of units sold
C. A lower actual selling price than budgeted
D. An increase in the cost of the products causing a decrease inincome for the period
A. The cost of products have decreased increasing the profit forthe product |
A. . Fewer units sold than budgeted |
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Mathews Company manufactures only one product. For the year ended December 31, the The excess of sales over variable costs.contribution margin increased by $20,280 from the planned level of $681,720. The president of Mathews Company has expressed some concern about this increase and has requested a follow-up report.
The following data have been gathered from the accounting records for the year ended December 31:
| Actual | Planned | DifferenceâIncrease (Decrease) | ||||
| Sales | $1,339,000 | $1,318,980 | $20,020 | |||
| Variable costs: | ||||||
| Variable cost of goods sold | $507,000 | $533,520 | $(26,520) | |||
| Variable selling and administrative expenses | 130,000 | 103,740 | 26,260 | |||
| Total variable costs | $637,000 | $637,260 | $(260) | |||
| Contribution margin | $702,000 | $681,720 | $20,280 | |||
| Number of units sold | 13,000 | 14,820 | ||||
| Per unit: | ||||||
| Sales price | $103 | $89 | ||||
| Variable cost of goods sold | 39 | 36 | ||||
| Variable selling and administrative expenses | 10 | 7 | ||||
Required:
1. Prepare a contribution margin analysis report for the year ended December 31.
| Mathews Company | ||
| Contribution Margin Analysis | ||
| For the Year Ended December 31 | ||
| 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 | $ | |
2. At a meeting of the board of directors on January 30, the president, after reviewing the contribution margin analysis report, made the following comment:
It looks as if the price increase of $14 was a favorable tradeoff for decreased sales volume, yet variable cost of goods sold was less than planned and variable selling and administrative expenses were out of control and needed to be investigated. He went on to say that since the favorable tradeoff between higher price and lower sales volume was so successful, the company should consider increasing the sales price to $130.
Do you agree or disagree with the president's proposal and which reason would best explain your decision about the data?
a) Disagree with the president because the majority of the decrease in the variable cost of goods sold was due to the variable cost quantity factor and the increased variable selling and administrative expenses are probably a result additional selling efforts needed to be competitive at higher prices.
b) Agree with the president because the unit cost factor for the variable selling and administrative cost is greater than the unit cost factor for the variable cost of goods sold, making an investigation necessary.
c) Agree with the president because the total effect of change in sales is greater than the total effect of changes in variable cost of goods sold, making an additional price raise attractive for more profits.
d) Disagree with the president because the contribution margin as a percentage of sales is greater for the planned sales level than the actual sales level, making his concern about variable selling and administrative expenses unwarranted.
e) Agree with the president because the majority of the decrease in the variable cost of goods sold was due to the sales price factor, as well as an increase in the variable selling and administrative expenses as a percentage of sales, making an additional price raise attractive for more profits.
Franklin Glass Works uses a standard cost system in whichmanufacturing overhead is applied on the basis of standard directlabor-hours. Each unit requires five standard hours of direct laborfor completion. The denominator activity for the year was based onbudgeted production of 170,000 units. Total overhead was budgetedat $2,250,000 for the year, and the fixed manufacturing overheadrate was $2.50 per direct labor-hour. The actual data pertaining tothe manufacturing overhead for the year are presentedbelow: |
| Actual production | 168,000 | units |
| Actual direct labor-hours | 410,000 | direct labor-hours |
| Actual variable manufacturing overhead | $322,000 | |
| Actual fixed manufacturing overhead | $572,000 |
Franklin'sfixed manufacturing overhead volume variance for the yearis:
| $25,000 unfavorable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $8,500 favorable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $313,500 favorable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$47,500 unfavorable
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