Question 1

On what effects does contribution margin analysis focus?

Accepted Answer

Contribution margin analysis focuses on all three factors: the quantity factor, the unit cost factor, and the unit sales price factor. It helps the company to identify the profitability of different products and services by analyzing the contribution margin. This analysis assists in making informed decisions regarding pricing, sales mix, and cost control.

Question 2

If the variable cost of goods sold totaled $90,000 for the year (18,000 units at $5.00 each) and the planned variable cost of goods sold totaled $86,400 (16,000 units at $5.40 each), the effect of the quantity factor on the change in contribution margin is:

Accepted Answer

The contribution margin per unit can be calculated as follows:
Contribution margin per unit = Selling Price per unit - Variable Cost per unit
For the year, the contribution margin is:
Contribution margin = Total Sales - Variable Cost of Goods Sold
= (18,000 units x $5.00 per unit) - $90,000
= $90,000 - $90,000
= $0
For the planned variable cost of goods sold, the contribution margin is:
Contribution margin = Total Sales - Variable Cost of Goods Sold
= (16,000 units x $5.40 per unit) - $86,400
= $86,400 - $86,400
= $0
Therefore, the quantity factor has no effect on the change in contribution margin, and the difference in variable cost of goods sold of $3,600 ($90,000 - $86,400) is irrelevant. The correct answer is A, $10,800 decrease, which is the change in total variable cost of goods sold from $90,000 to $86,400.

Question 3

Managers in service firms do not find contribution margin analysis reports useful because their firms do not sell inventory.

Accepted Answer

While service firms may not sell physical inventory, they can still benefit from contribution margin analysis to understand the profitability of their various services and make informed decisions about pricing and resource allocation.

Question 4

Contribution margin reporting and analysis is appropriate only for manufacturing firms, not for service firms.

Accepted Answer

Contribution margin reporting and analysis can be used for both manufacturing and service firms. It helps to determine the profitability of each product or service provided by the company.

Question 5

The actual price for a product was $50 per unit, while the planned price was $44 per unit. The volume increased by 4,000 to 60,000 total units. 
Determine: 
(a) the quantity factor 
(b) the price factor for sales.

Accepted Answer

The answer of The actual price for a product was...

Question 6

If the variable cost of goods sold totaled $90,000 for the year (18,000 units at $5.00 each) and the planned variable cost of goods sold totaled $86,400 (16,000 units at $5.40 each), the effect of the unit cost factor on the change in contribution margin is:

Accepted Answer

The answer of If the variable cost of goods sold...

Question 7

If the variable selling and administrative expenses totaled $124,000 for the year (80,000 units at $1.55 each) and the planned variable selling and administrative expenses totaled $136,500 (78,000 units at $1.75 each), the effect of the quantity factor on the change in contribution margin is:

Accepted Answer

The answer of If the variable selling and administrative expenses...

Question 8

Which of the following would not be an appropriate activity base for cost analysis in a service firm?

Accepted Answer

Inventory produced would not be an appropriate activity base for cost analysis in a service firm because service firms do not usually produce inventory. The other activities listed, such as mowing lawns, servicing customers, and giving haircuts, are all activities performed by service firms and can be used as activity bases for cost analysis.

Question 9

The systematic examination of the differences between planned and actual contribution margin is

Accepted Answer

Contribution margin analysis is the systematic examination of the differences between planned and actual contribution margins. It helps in understanding how deviations in sales and production levels affect the profitability of a company.

Question 10

Edna's Chocolates had planned to sell chocolate-covered strawberries for $3.00 each. Due to various factors, the actual price was $2.75. Edna's was able to sell 1,000 more strawberries than the anticipated 4,000. What is (1) the quantity factor and (2) the price factor for sales?

Accepted Answer

(1) The quantity factor is the difference in actual and anticipated quantity, which is 1000. Therefore, the quantity factor is:
1000 x $3.00 = $3,000

(2) The price factor is the difference in actual and anticipated price, which is $0.25. Since 5% of $3.00 is $0.15, the price increase is more than 5% but less than 10%. Therefore, the price factor is:
1000 x $0.25 = $250
$250/0.20 = $1,250 (20% profit margin)
$3.00 - $1.25 = $1.75 (20% cost price)
$1.75 - $0.25 = $1.50 (10% cost price)
$1.50 - $0.15 = $1.35 (5% cost price)
$1.50 x 1000 = $1,500
$1,500 - $1,250 = $250
Therefore, the price factor is -$250, which means that there was a loss of $250 in sales. 
Hence, the answer is (1) $3,000, (2) $(1,250).

Question 11

Based upon the following data taken from the records of Bruce Inc., prepare a contribution margin analysis report for the year ended December 31.

Accepted Answer

The answer of Based upon the following data taken from...

Question 12

If the variable cost of goods sold totaled $80,000 for the year (16,000 units at $5.00 each) and the planned variable cost of goods sold totaled $86,250 (15,000 units at $5.75 each), the effect of the unit cost factor on the change in contribution margin is:

Accepted Answer

The unit cost factor is the difference between the actual unit cost and the planned unit cost. In this case, the actual unit cost is $5.00 and the planned unit cost is $5.75. The difference is $0.75. The effect of the unit cost factor on the change in contribution margin is the difference between the actual variable cost of goods sold and the planned variable cost of goods sold, multiplied by the unit cost factor. In this case, the actual variable cost of goods sold is $80,000 and the planned variable cost of goods sold is $86,250. The difference is $6,250. The unit cost factor is $0.75. The effect of the unit cost factor on the change in contribution margin is $6,250 x $0.75 = $12,000.

Question 13

If sales totaled $800,000 for the year (80,000 units at $10.00 each) and the planned sales totaled $799,500 (78,000 units at $10.25 each), the effect of the unit price factor on the change in sales is:

Accepted Answer

The answer of If sales totaled $800,000 for the year...

Quiz 6: Variable Costing for Management Analysis

On what effects does contribution margin analysis focus?

If the variable cost of goods sold totaled $90,000 for the year (18,000 units at $5.00 each) and the planned variable cost of goods sold totaled $86,400 (16,000 units at $5.40 each) , the effect of the quantity factor on the change in contribution margin is:

Managers in service firms do not find contribution margin analysis reports useful because their firms do not sell inventory.

Contribution margin reporting and analysis is appropriate only for manufacturing firms, not for service firms.

The actual price for a product was $50 per unit, while the planned price was $44 per unit. The volume increased by 4,000 to 60,000 total units. Determine: (a) the quantity factor (b) the price factor for sales.

If the variable cost of goods sold totaled $90,000 for the year (18,000 units at $5.00 each) and the planned variable cost of goods sold totaled $86,400 (16,000 units at $5.40 each) , the effect of the unit cost factor on the change in contribution margin is:

If the variable selling and administrative expenses totaled $124,000 for the year (80,000 units at $1.55 each) and the planned variable selling and administrative expenses totaled $136,500 (78,000 units at $1.75 each) , the effect of the quantity factor on the change in contribution margin is:

Which of the following would not be an appropriate activity base for cost analysis in a service firm?

The systematic examination of the differences between planned and actual contribution margin is

Edna's Chocolates had planned to sell chocolate-covered strawberries for $3.00 each. Due to various factors, the actual price was $2.75. Edna's was able to sell 1,000 more strawberries than the anticipated 4,000. What is (1) the quantity factor and (2) the price factor for sales?

Based upon the following data taken from the records of Bruce Inc., prepare a contribution margin analysis report for the year ended December 31.

If the variable cost of goods sold totaled $80,000 for the year (16,000 units at $5.00 each) and the planned variable cost of goods sold totaled $86,250 (15,000 units at $5.75 each) , the effect of the unit cost factor on the change in contribution margin is:

If sales totaled $800,000 for the year (80,000 units at $10.00 each) and the planned sales totaled $799,500 (78,000 units at $10.25 each) , the effect of the unit price factor on the change in sales is: