Mathews Company manufactures only one product. For the year ended December 31, 2014, the contribution margin decreased by $126,000 from the planned level of $540,000. The president of Mathews Company has expressed some concern about this decrease and has requested a follow-up report. The following data have been gathered from the accounting records for the year ended December 31, 2014.
Solution
MATHEWS COMPANY Contribution Margin Analysis Report Planned(30000 units) Actual(34500units) Difference Analysis Per unit Total Per unit Total Per unit Total Sales Price 69 2070000 66 2277000 -3 207000 Less: Variable Cost of Goods sold 33 990000 30 1035000 3 45000 Variable Sell.& Admn.exp. 18 540000 24 828000 -6 288000 Contribution 18 540000 12 414000 -6 -126000 2. Variable administration and selling expenses have gone up by $ 6 per unit of sales. This more than offsets the decrease in cost of goods sold by $ 3 per unit. So, This is the area which needs to be looked into and controlled. Actual(37950units) Per unit Total Per unit Total Per unit Total Sales Price 69 2070000 60 2277000 -9 207000 Less: Variable Cost of Goods sold 33 990000 30 1138500 3 148500 Variable Sell.& Admn.exp. 18 540000 24 910800 -6 370800 Contribution 18 540000 6 227700 -12 -312300 Decreasing the sale price by $ 6 per unit, decreases the contribution by $ 6 per unit, thereby increasing the total contribution loss - towards covering fixed costs. Decreasing the sales price alone with a view to increase the volume alone - without controlling variable, selling and administration expenses is NOT RECOMMENDED.
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Mathews Company manufactures only one product- For the year ended Dece.docx
1. Mathews Company manufactures only one product. For the year ended December 31, 2014, the
contribution margin decreased by $126,000 from the planned level of $540,000. The president of
Mathews Company has expressed some concern about this decrease and has requested a follow-
up report. The following data have been gathered from the accounting records for the year ended
December 31, 2014.
Solution
MATHEWS COMPANY Contribution Margin Analysis Report Planned(30000 units)
Actual(34500units) Difference Analysis Per unit Total Per unit Total Per unit Total Sales Price
69 2070000 66 2277000 -3 207000 Less: Variable Cost of Goods sold 33 990000 30 1035000 3
45000 Variable Sell.& Admn.exp. 18 540000 24 828000 -6 288000 Contribution 18 540000 12
414000 -6 -126000 2. Variable administration and selling expenses have gone up by $ 6 per unit
of sales. This more than offsets the decrease in cost of goods sold by $ 3 per unit. So, This is the
area which needs to be looked into and controlled. Actual(37950units) Per unit Total Per unit
Total Per unit Total Sales Price 69 2070000 60 2277000 -9 207000 Less: Variable Cost of Goods
sold 33 990000 30 1138500 3 148500 Variable Sell.& Admn.exp. 18 540000 24 910800 -6
370800 Contribution 18 540000 6 227700 -12 -312300 Decreasing the sale price by $ 6 per unit,
decreases the contribution by $ 6 per unit, thereby increasing the total contribution loss - towards
covering fixed costs. Decreasing the sales price alone with a view to increase the volume alone -
without controlling variable, selling and administration expenses is NOT RECOMMENDED.
