Contribution Margin Format Example: Volume XX Sales XX Variable Costs (Listed) XX Variable Costs (Total) XX...

Contribution Margin Format Example:

Volume		XX
Sales		XX
Variable Costs (Listed)	XX
Variable Costs (Total)		XX
Contribution Margin		XX
Fixed Costs (Listed)	XX
Fixed Costed (Total)		XX
Operating Income		XX

Vroom-Vroom manufactures ride-on cars for toddlers and young children. They have a fiscal year of January through December. When they were preparing their budget, they couldn’t decide if a static or flexible budget would be best for their company – so they did both. It is now March, and their accounting department is catching up on analyzing variances for both January and February. Vroom-Vroom would like to use this opportunity to determine whether they would be better off with a static or flexible budget going forward. They want to choose which budget and related variance analysis provides them the best information for decision-making.

Monthly Budget Data:

Price per unit	$79	per each
Raw material costs	$27	per each
Packaging costs	$15	per each
Electricity	$4	per each
Waste and other costs	$6	per each
Salary and wage costs	$560,000	per month
Fringe Benefits	50%	of salaries
Rent costs	$750,000	per month
Insurance costs	$50,000	per month
Depreciation costs	$370,000	per month

Vroom-Vroom estimated sales/production will be between 100,000 and 300,000 cars per month. Their static budget is based on 200,000 cars sold per month. Assume that all units produced in a month are also sold in that month. Vroom-Vroom’s unit of production/sale is a car (unit/each).

Actual results in Jan. and Feb.:

Actual Data	January	February
Production (Units)	245,000	187,000
Revenue (Sales)	$19,345,000	$14,888,000
Raw Materials	$6,545,000	$4,996,000
Packaging Materials	$3,688,000	$2,897,000
Electricity	$975,000	$742,000
Waste and other costs	$1,537,000	$1,242,000
Wages	$560,000	$575,000
Fringe Benefits	$280,000	$287,500
Rent	$750,000	$750,000
Insurance	$52,000	$52,000
Depreciation	$370,000	$340,000

Question: Prepare a static budget in Excel for Vroom-Vroom based on 200,000 units produced. (36 points)

Show the static budget for January in Contribution Margin Income Statement format.
Compare January’s static budget to January’s actual results. Specify which line items are favorable or unfavorable and how much.
For Raw Material Costs and Packaging Costs, break out the Price and Volume Variances for January. Provide potential explanations for each one. Note: Saying that an item was above or below budget is NOT an explanation. You need to include potential (made-up) reasons.
Show the static budget for February in the Contribution Margin Income Statement format.
Compare February’s static budget to February’s actual results. Specify which line items are favorable or unfavorable and how much.
For Raw Material Costs and Packaging Costs, break out the Price and Volume Variances for February. Provide potential explanations for each one. Note: Saying that an item was above or below budget is NOT an explanation. You need to include potential (made-up) reasons.

Expert Solution

a & b			Static Budget	Actutual	Difference (Actual - Budgeted)
			January	January
	Volume (Units)		200000	245000
	Sales		15800000	19345000	3545000	Favourable
	Variable cost:
	Raw material cost	5400000		6545000	1145000	Unfavourable
	Pacakage cost	3000000		3688000	688000	Unfavourable
	Electricity expenses	800000		975000	175000	Unfavourable
	Waste and other cost	1200000		1537000	337000	Unfavourable
	Variable Costs (Total)		10400000	12745000
	Contribution Margin		5400000	6600000
	Fixed Costs :
	Salary and wages	560000		560000	0	Unfavourable
	Fringe benefits	280000		280000	0	Unfavourable
	Rent	750000		750000	0	Unfavourable
	Insurance cost	50000		52000	2000	Unfavourable
	Depreciation	370000		370000	0	Unfavourable
	Fixed Costed (Total)		2010000	2012000
	Operating Income		3390000	4588000

c	Raw material
	Price variance	=(actual rate - standard rate) actual qty		Actual rate	=(6545000/245000)
		=(26.71-27)245000			26.71428571
		-71050	favourable
	Reason: Prices of raw material might have reduced due to effective purchasing.

	Volume variance	=(Actual qty - standard qty ) standard rate
		=(245000-200000)27
		1215000	Unfavourable

	Reaoson: More quantity of material consumed

	Packaging cost
	Price variance	=(actual rate - standard rate) actual qty		Actual rate	=(3688000/245000)
		=(15.05-15)245000			15.05306122
		12250	Unfavourable

	Reason: Pirce of packaging might have increased.

	Volume variabce	=(Actual qty - standard qty ) standard rate
		=(245000-200000)15
		675000	Unfavourable

	Reason: More quantity used for per unit production

d			Static Budget	Actutual	Difference (Actual - Budgeted)
			Feb	Feb
	Volume (Units)		200000	187000
	Sales		15800000	14888000	-912000	Unfavourable
	Variable cost:
	Raw material cost	5400000		4996000	-404000	favourable
	Pacakage cost	3000000		2897000	-103000	favourable
	Electricity expenses	800000		742000	-58000	favourable
	Waste and other cost	1200000		1242000	42000	Unfavourable
	Variable Costs (Total)		10400000
	Contribution Margin		5400000	14888000
	Fixed Costs :
	Salary and wages	560000		575000	15000	Unfavourable
	Fringe benefits	280000		287500	7500	Unfavourable
	Rent	750000		750000	0
	Insurance cost	50000		52000	2000	Unfavourable
	Depreciation	370000		340000	-30000	favourable
	Fixed Costed (Total)		2010000	2004500
	Operating Income		3390000	12883500

ekkarill92 answered 3 years ago

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