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Contribution Margin Analysis—Sales Select Audio Inc. sells electronic equipment. Management decided early in the year to reduce...

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Accounting

Contribution Margin Analysis—Sales

Select Audio Inc. sells electronic equipment. Management decidedearly in the year to reduce the price of the speakers in order toincrease sales volume. As a result, for the year ended December 31,the sales increased by $31,875 from the planned level of$1,048,125. The following information is available from theaccounting records for the year ended December 31.


Actual
Planned		Increase or
(Decrease)
Sales$1,080,000$1,048,125$31,875
Number of units sold36,00032,2503,750
Sales price$30.00$32.50$(2.50)
Variable cost per unit$10.00$10.00$0

a. Prepare an analysis of the sales quantityand unit price factors. Use a minus sign for any negativeamounts.

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 sufficientvolume to result in a net increase in contribution margin if theactual variable cost per unit was $10, as planned?

Answer & Explanation Solved by verified expert
3.8 Ratings (625 Votes)

a)

Select Audio Inc.
Contribution Margin Analysis—Sales
For the Year Ended December 31
Effect of changes in sales:
Sales quantity factor $                                                    121,875.00
Unit price factor $ -90,000.00
Total effect of changes in sales $ 31,875.00

Sales quantity factor = (Actual Units Sold ­- Planned Units of Sales) x Planned Sales Price

=( 36,000 - 32,250) x 32.5

=121,875

Unit price factor = (Actual Sale Price - Planned Sales Price) x Actual Units Sold

= (30 -32.5) x 36,000

=-90,000

b)Yes the Price Decrease from 32.5 to 30 has generated enough revenue which has covered the difference of unit price factor
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