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 $31,875 from the planned level of $1,048,125. The following information is available from the accounting records for the year ended December 31.

	Actual		Planned		Increase or (Decrease)
Sales	$1,080,000		$1,048,125		$31,875
Number of units sold	36,000		32,250		3,750
Sales price	$30.00		$32.50		$(2.50)
Variable cost per unit	$10.00		$10.00		$0

a. Prepare an analysis of the sales quantity and unit price factors. Use a minus sign for any negative amounts.

Select Audio Inc.
Contribution Margin Analysis—Sales
For the Year Ended December 31
Effect of changes in sales:
Sales quantity factor	$
Unit price factor
Total effect of changes in sales		$

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 $10, as planned?

Answer 1

a)

Select Audio Inc.
Contribution Margin Analysis—Sales
For the Year Ended December 31
Effect of changes in sales:
Sales quantity factor	$                                                    121,875.00
Unit price factor	$ -90,000.00
Total effect of changes in sales		$ 31,875.00

Sales quantity factor = (Actual Units Sold ­- Planned Units of Sales) x Planned Sales Price

=( 36,000 - 32,250) x 32.5

=121,875

Unit price factor = (Actual Sale Price - Planned Sales Price) x Actual Units Sold

= (30 -32.5) x 36,000

=-90,000

b)Yes the Price Decrease from 32.5 to 30 has generated enough revenue which has covered the difference of unit price factor