Dozier Industries Inc. manufactures only one product. For the year ended Decembe
ID: 2459529 • Letter: D
Question
Dozier Industries Inc. manufactures only one product. For the year ended December 31, the contribution margin increased by $38,500 from the planned level of $1,386,000 The president of Dozier Industries Inc. has expressed some concern about such a small increase and has requested a follow-up report.
The following data have been gathered from the accounting records for the year ended December 31:
1
Actual
Planned
Difference — Increase (Decrease)
2
Sales
$2,772,000.00
$2,750,000.00
$22,000.00
3
Less:
4
Variable cost of goods sold
$1,058,750.00
$1,122,000.00
$(63,250.00)
5
Variable selling and administrative expenses
288,750.00
242,000.00
46,750.00
6
Total
$1,347,500.00
$1,364,000.00
$(16,500.00)
7
Contribution margin
$1,424,500.00
$1,386,000.00
$38,500.00
Actual
Planned
Number of units sold
19,250
22,000
Per unit:
Actual
Planned
Sales price
$144
$125
Variable cost of goods sold
55
51
Variable selling and administrative expenses
15
11
Required:
1.
Prepare a contribution margin analysis report for the year ended December 31. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if it is required. For those boxes in which you must enter subtracted or negative numbers use a minus sign.
2.
At a meeting of the board of directors on January 30, the president, after reviewing the contribution margin analysis report, made the following comment:
It looks as if the price increase of $19 had the effect of decreasing sales volume. However, this was a favorable tradeoff. The variable cost of goods sold was less than planned. Apparently, we are efficiently managing our variable cost of goods sold. However, the variable selling and administrative expenses appear out of control. Let’s look into these expenses and get them under control! Also, let’s consider increasing the sales price to $160 and continue this favorable tradeoff between higher price and lower volume.
Do you agree with the president’s comment? Explain.
Labels
Effect of changes in sales
Effect of changes in variable selling and administrative expenses
Effect of changes in variable cost of goods sold
For the Year Ended December 31
Amount Descriptions
Actual contribution margin
Contribution margin ratio
Gross profit
Planned contribution margin
Sales mix
Sales quantity factor
Total effect of changes in sales
Total effect of changes in variable selling and administrative expenses
Total effect of changes in variable cost of goods sold
Unit cost factor
Unit price factor
Variable cost quantity factor
1. Prepare a contribution margin analysis report for the year ended December 31. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if it is required. For those boxes in which you must enter subtracted or negative numbers use a minus sign.
Dozier Industries Inc.
Contribution Margin Analysis
1
2
3
4
5
6
7
8
9
10
11
12
13
14
2. At a meeting of the board of directors on January 30, the president, after reviewing the contribution margin analysis report, made the following comment:
It looks as if the price increase of $19 had the effect of decreasing sales volume. However, this was a favorable tradeoff. The variable cost of goods sold was less than planned. Apparently, we are efficiently managing our variable cost of goods sold. However, the variable selling and administrative expenses appear out of control. Let’s look into these expenses and get them under control! Also, let’s consider increasing the sales price to $160 and continue this favorable tradeoff between higher price and lower volume.
Do you agree with the president’s comment? Explain.
Disagree with the president because the contribution margin as a percentage of sales is greater for the planned sales level than the actual sales level, making his concern about variable selling and administrative expenses unwarranted.
Agree with the president because the majority of the decrease in the variable cost of goods sold was due to the sales price factor, as well as an increase in the variable selling and administrative expenses as a percentage of sales, making an additional price raise attractive for more profits.
Disagree with the president because the majority of the decrease in the variable cost of goods sold was due to the variable cost quantity factor and the increased variable selling and administrative expenses are probably a result of additional selling efforts needed to be competitive at higher prices.
Agree with the president because the total effect of change in sales is greater than the total effect of changes in variable cost of goods sold, making an additional price raise attractive for more profits.
Agree with the president because the unit cost factor for the variable selling and administrative cost is greater than the unit cost factor for the variable cost of goods sold, making an investigation necessary.
Explanation / Answer
Answer:1
Dozier industries Inc.
Contribution margin analysis
For the year ended December 31,20XX
Planned contribution margin
1386000
Effect of change in sales:
Sales quantity factor
(19250-22000)*125 = -343750
Unit price factor
(144-125)*19250 = 365750
Total effect of change in sales
22000
Effect of change in variable COGS:
Variable cost quantity factor
(19250-22000)*51 = -140250
Unit price factor
(55-51)*19250 = 77000
Total effect of change in variable COGS
-63250
Effect of change in variable selling & administrative Expenses:
Variable cost quantity factor
(19250-22000)*11 = -30250
Unit price factor
(15-11)*19250 = 77000
Total effect of change in variable selling & administrative Expenses
46750
Actual contribution margin
1424500
Answer:2
Option D.
Agree with the president because the total effect of change in sales is greater than the total effect of changes in variable cost of goods sold, making an additional price raise attractive for more profits.
Dozier industries Inc.
Contribution margin analysis
For the year ended December 31,20XX
Planned contribution margin
1386000
Effect of change in sales:
Sales quantity factor
(19250-22000)*125 = -343750
Unit price factor
(144-125)*19250 = 365750
Total effect of change in sales
22000
Effect of change in variable COGS:
Variable cost quantity factor
(19250-22000)*51 = -140250
Unit price factor
(55-51)*19250 = 77000
Total effect of change in variable COGS
-63250
Effect of change in variable selling & administrative Expenses:
Variable cost quantity factor
(19250-22000)*11 = -30250
Unit price factor
(15-11)*19250 = 77000
Total effect of change in variable selling & administrative Expenses
46750
Actual contribution margin
1424500
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.