Question

Mantle Corp. prepared a budget last period that called for sales of 20,000 units at a price of $20 each. The costs per unit were estimated to amount to $10 variable and $4 fixed. During the period, production was exactly equal to actual sales of 24,000 units. The selling price was $19.00 per unit. Variable costs were $12 per unit. Fixed costs actually incurred were $95,000.

a) Prepare a report to show the difference between the actual contribution margin per the static budget and the budgeted contribution margin per the flexible budget.

b) Explain the significance of the comparisons.

Answer 1

Ans

The contribution margin is calculated as below

Contribution margin = (Sales price per unit – variable cost ) / sales price per unit

The report showing actual contribution margin per the static budget and the budgeted contribution margin per the flexible budget.

Is calculated below

Particulars	actual contribution margin of static budget	budgeted contribution as per flexible budget
sales per unit	19	20
less
variable cost per unit	12	10
contribution per unit	7	10
contribution margin	37%	50%
sales volume	24,000	24000

b) Explain the significance of the comparisons.

Ans

The following are the analysis

The sales volume is will be same for actual contribution in static budget and for flexible budget. Hence contribution margin per unit can be compared

The contribution margin is at actual is 37% which is less than 50% at budgeted figures . which is due to decrease in sales price by $1 per unit and increase in variable cost by $2 per unit