Question

3. The Stark Stark Company manufactures a product that is expected to incur $20 per unit in variable production costs and sell for $40 per unit. The sales commission is 10​% of the sales price. Due to intense​ competition, Stark Stark actually sold 200 units for $38 per unit. The actual variable production costs incurred were $23.75 per unit. Calculate the total contribution margin and contribution margin ratio at the expected​ price/costs and the actual​ price/costs. How might management use this​ information? Complete the expected contribution margin by entering the appropriate amounts to calculate the total contribution margin and contribution margin ratio. ​(Enter the contribution margin ratio to two decimal​ place, X.XX%.) Expected Contribution Margin Net Sales Revenue Variable Costs: Production Costs Sales Commission Contribution Margin Contribution Margin Ratio % Complete the actual contribution margin by entering the appropriate amounts to calculate the total contribution margin and contribution margin ratio. ​(Enter the contribution margin ratio to two decimal​ place, X.XX%.) Actual Contribution Margin Net Sales Revenue Variable Costs: Production Costs Sales Commission Contribution Margin Contribution Margin Ratio % How might management use this​ information? The actual results varied significantly from the expected​ results, ▼ both in total contribution margin and contribution margin ratio. only in contribution margin ratio. only in total contribution margin. Management should investigate the​ cause(s) for the difference in the ▼ actual contirbution margin ratio and the actual contribution margin. expected contirbution margin ratio and the expected contribution margin. expected variable production costs and the actual variable production costs. The company may decide to ▼ continue the product if it is able to decrease discontinue the product if it is unable to decrease discontinue the product if it is unable to increase the contribution margin.​ Also, because the prediction was significantly different from the actual​ results, management may also want to evaluate the methods the company uses to ▼ account for product profitability. predict product profitability.

Answer 1

Answer:	The expected and the actual contribution margin/contribution margin ratio is calculated as follows:
		Expected		Actual
	Sales revenue	$          8,000.00	(200 units * $40)	$                7,600.00	(200 units * $38)
	Less: Variable cost	$          4,000.00	(200 units * $20)	$                4,750.00	(200 units * $23.75)
	Sales commission	$             800.00	200 units *$40*10%)	$                   760.00	(200 units *$38*10%)
	Total contribution margin	$          3,200.00	($8000-4000-800)	$                2,090.00	($7600-4750-760)
	Contribution margin ratio	40.00%	($3,200/8,000)	27.50%	($2,090/7,600)
	The actual results varied significantly from the expected​ results, both in total contribution margin and contribution margin ratio.
	Management should investigate the​ cause(s) for the difference in the expected variable production costs and the actual variable production costs.
	The company may decide to discontinue the product if it is unable to increase the contribution margin.​
	Also, because the prediction was significantly different from the actual​ results, management may also want to evaluate the methods the company uses to predict product profitability.