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A small accounting firm budgets 200 hours of billings for the next month, and 60% of these hours are expected to be for tax return preparation services, with the remaining 40% for bookkeeping services. Tax work is billed at $50 per hour, and bookkeeping work is billed at $40 per hour. The variable costs for both types of services are $10 per hour. During the month 180 hours were billed, 90 of which were for tax work.
-(Appendix 11A) The contribution margin sales quantity variance was
A) $720 unfavorable
B) $540 favorable
C) $0
D) $1,200 favorable

Question

Quizplus · Accepted Answer

The contribution margin sales quantity variance is calculated as the difference between the actual and budgeted hours, multiplied by the contribution margin per hour. The budgeted hours were 200, but only 180 were billed, resulting in a 20-hour shortfall. The contribution margin per hour is $40 for tax work and $30 for bookkeeping. The variance is 20 hours x $30 (average contribution margin) = $600 unfavorable. However, since the question asks for the contribution margin sales quantity variance, which considers the mix of services, the correct calculation is 20 hours x $36 (weighted average contribution margin) = $720 unfavorable.

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