Question

Ellis Animal Health, Inc. produces a generic medication used to treat cats with feline diabetes. The liquid medication is sold in 100 ml vials. The term that Ellis uses for the product sold is a “dose”. Ellis employs a team of sales representatives who are paid varying amounts of commission.

Given the narrow margins in the generic veterinary industry, Ellis relies on tight standards and cost controls to manage its operations. Ellis has the following budgeted standards for the month of April 2017:

                  Budgeted sales for April                                                                                                           700,000 doses

Average selling price per dose                                                                          $8.30 per dose

                  Medicine – 105 ml/dose @ $0.030 / ml                                                                         $3.15 per dose

                  Vials – 1 vial per dose @ $0.45 / vial                                                             $0.45 per dose

                  Direct manufacturing labor cost per hour                                                 $15.00 / hour

                  Average labor productivity rate (doses per hour)                                                      100

                  Sales commission is paid on all sales – average commission     $0.72 per dose

                  Fixed administrative and manufacturing overhead                           $990,000             

Actual results

Because of an accident in the factory, actual results were much different than planned

                  Dose sales and production were 90% of plan.

                  Actual average selling price increased to $8.40 per dose

                  Productivity dropped to 90 doses per hour

Raw material

Medicine – the company used 72,128,483 milliliters of medicine. They paid $0.029 per milliliter

Vials – the company used 702, 450 vials. They paid a total of $365,274 for the vials used

Actual direct manufacturing labor cost was $14.75 per hour

Sales commission – The average commission was $0.70 per dose

Fixed overhead costs were $40,000 above budget

1.a Calculate the budget using the contribution margin income statement approach showing the volume, use and rate components (when appropriate)

1.b Calculate the actual results using the contribution margin income statement approach showing the volume, use and rate components (when appropriate)

Answer 1

BUDGETED CONTRIBUTION MARGIN INCOME STATEMENT
					AMOUNT $
Sales revenue (700,000 doses @$ 8.30)					5810000
Less: Variable cost
Medicine (73500,000 ml @0.03 per ml)					2205000
Vials (700,000 vials @$ 0.45)					315000
Direct labour cost (7000 hours@$15 per hour)					105000
Sales commission (700,000 doses @$0.72 per dose)					504000
Contribution margin					2681000
Less: Fixed cost
Admin and selling expense					990,000
Net Budgeted Income					1,691,000
ACTUAL CONTRIBUTION MARGIN INCOME STATEMENT
					AMOUNT $
Sales revenue (630,000 doses @$ 8.40)					5292000
Less: Variable cost
Medicine (72,128,483 ml @0.029 per ml)					2091726
Vials (702,450 vials @$ 0.52)					365274
Direct labour cost (7000 hours@$14.75 per hour)					103250
Sales commission (630,000 doses @$0.70 per dose)					441000
Contribution margin					2290750
Less: Fixed cost
Admin and selling expense					1,030,000
Net Actual Income					1,260,750