Problem 18.31 Contribution Margin Variance, Contribution Margin Volume Variance,
ID: 2456887 • Letter: P
Question
Problem 18.31
Contribution Margin Variance, Contribution Margin Volume Variance, Sales Mix Variance
Haysbert Company provides management services for apartments and rental units. In general, Haysbert packages its services into two groups: basic and complete. The basic package includes advertising vacant units, showing potential renters through them, and collecting monthly rent and remitting it to the owner. The complete package adds maintenance of units and bookkeeping to the basic package. Packages are priced on a per-rental unit basis. Actual results from last year are as follows:
Required:
1. Calculate the contribution margin variance.
$
2. Calculate the contribution margin volume variance. Round the budgeted average unit contribution margin to four decimal places. Round your final answer to the nearest cent.
$
3. Calculate the sales mix variance. Round the budgeted average unit contribution margin to four decimal places. Round your final answer to the nearest cent.
$
Explanation / Answer
1.
Contribution margin variance = Actual contribution margin – Budgeted contribution margin
Contribution margin = Sales – Variable expenses
Actual contribution margin
Basic
Complete
Selling price
$140
$300
Variable expenses
$85
$240
Contribution margin per unit
$55
$60
Sales units
2000
400
Contribution margin
$110,000
$24,000
Actual contribution margin = $110,000 + $24,000 = $134,000
Budgeted Contribution margin
Basic
Complete
Selling price
$145
$290
Variable expenses
$90
$242
Contribution margin per unit
$55
$48
Sales units
1950
460
Contribution margin
$107,250
$22,080
Budgeted Contribution margin = $107,250 + $220,80 = $129,330
Contribution margin variance = $134,000 - $129,330 = $4,670 F
2.
Budgeted sales units = 1950 + 460 = 2410 rental units
Budgeted contribution margin = $129,330
Budgeted average contribution margin per unit = $129,330 / 2410 = $53.6639
Actual sales units = 2000 + 400 = 2410 rental units
Contribution margin volume variance = (Actual sales unit – Budgeted sales unit)*Budgeted CM per unit
= (2000 – 2410)* $53.6639 = $22,002.20 U
This unfavorable variance shows that the actual contribution margin is less than budgeted contribution margin because of sales units.
3.
Basic sales mix data = (2000 – 1950)($55 - $53.6639) = $66.81 F
Complete sales mix data = (400 – 460)($48 - $53.6639) = $339.83 F
Sales mix variance = $66.81 F + $339.83 F = $406.64 F
Basic
Complete
Selling price
$140
$300
Variable expenses
$85
$240
Contribution margin per unit
$55
$60
Sales units
2000
400
Contribution margin
$110,000
$24,000