Mantle Corp. prepared a budget last period that called for sales of 20,000 units

ID: 2531482 • Letter: M

Question

Mantle Corp. prepared a budget last period that called for sales of 20,000 units at a price of $20 each. The costs per unit were estimated to amount to $10 variable and $4 fixed. During the period, production was exactly equal to actual sales of 24,000 units. The selling price was $19.00 per unit. Variable costs were $12 per unit. Fixed costs actually incurred were $95,000.

a) Prepare a report to show the difference between the actual contribution margin per the static budget and the budgeted contribution margin per the flexible budget.

b) Explain the significance of the comparisons.

Explanation / Answer

Ans

The contribution margin is calculated as below

Contribution margin = (Sales price per unit – variable cost ) / sales price per unit

The report showing actual contribution margin per the static budget and the budgeted contribution margin per the flexible budget.

Is calculated below

Particulars

actual contribution margin of static budget

budgeted contribution as per flexible budget

sales per unit

less

variable cost per unit

contribution per unit

contribution margin

37%

50%

sales volume

24,000

24000

b) Explain the significance of the comparisons.

Ans

The following are the analysis

The sales volume is will be same for actual contribution in static budget and for flexible budget. Hence contribution margin per unit can be compared

The contribution margin is at actual is 37% which is less than 50% at budgeted figures . which is due to decrease in sales price by $1 per unit and increase in variable cost by $2 per unit