Question

Cornerstone Exercise 18.6 (Algorithmic)
Contribution Margin Variance

Iliff, Inc., produces and sells two types of countertop ovens—the toaster oven and the convection oven. Budgeted and actual data for the two models are shown below.

Budgeted Amounts:

	Toaster Oven	Convection Oven	Total
Sales:
($90 * 25,000)	$2,250,000
($145 * 16,500)		$2,392,500	$4,642,500
Variable expenses	470,000	740,000	1,210,000
Contribution margin	$1,780,000	$1,652,500	$3,432,500

Actual Amounts:

	Toaster Oven	Convection Oven	Total
Sales:
($82 * 23,000)	$1,886,000
($161 * 14,000)		$2,254,000	$4,140,000
Variable expenses	517,600	703,400	1,221,000
Contribution margin	$1,368,400	$1,550,600	$2,919,000

Required:

1. Calculate the contribution margin variance.

$ - Select your answer -FavorableUnfavorable

2. What if actual units sold of the convection oven decreased? How would that affect the contribution margin variance? - Select your answer -It would become less unfavorable or more favorableIt would become more unfavorable or less favorable

What if actual units sold of the convection oven increased? How would that affect the contribution margin variance? - Select your answer -It would become less unfavorable or more favorableIt would become more unfavorable or less favorable

Answer 1

1) Contribution margin variance = Actual contribution margin – Expected contribution margin
Contribution margin variance = $2919000 - $3432500	$513,500.00	Favourable
2)
What if actual units sold of the convection oven decreased? How would that affect the contribution margin variance?
The contribution margin variance would increase
It would become more unfavorable or less favorable
What if actual units sold of the convection oven increased? How would that affect the contribution margin variance?
The contribution margin variance would become smaller.
It would become less unfavorable or more favorable