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Learning Objective 5

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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 $17,700 from the planned level of $941,700. The following information is available from the accounting records for the year ended December 31.

	Actual		Planned		Increase or (Decrease)
Sales	$959,400		$941,700		$17,700
Number of units sold	24,600		21,900		2,700
Sales price	$39		$43		$(4)
Variable cost per unit	$7		$7		$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 $7, 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	116100
Unit price factor	-98400
Total effect of changes in sales		17700

Working notes for the above answer is as under

Sales Quantity Factor

= (Actual Quantity - planned Quantity) * Planned Sales Price

= (24600-21900 ) * 43

= $ 116100

Unit Price Factor

= (Actual Sales Price - Planned Sales Price) * Actual Units

= (39*43 ) * 24600

= -98400

_______________________________________________

2

Yes, the price decrease   generate sufficient volume to result in a net increase in contribution margin if the actual variable cost per unit was $7, as planned