Mathews Company manufactures only one product. For the year ended December 31, 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: Actual Planned Difference—Increase (Decrease) Sales $2,277,000 $2,070,000 $207,000 Variable costs: Variable cost of goods sold $1,035,000 $990,000 $45,000 Variable selling and administrative expenses 828,000 540,000 288,000 Total variable costs $1,863,000 $1,530,000 $333,000 Contribution margin $414,000 $540,000 $(126,000) Number of units sold 34,500 30,000 Per unit: Sales price $66 $69 Variable cost of goods sold 30 33 Variable selling and administrative expenses 24 18 Required: 1. Prepare a contribution margin analysis report for the year ended December 31. Mathews Company Contribution Margin Analysis For the Year Ended December 31 Planned contribution margin $ Effect of changes in sales: Sales quantity factor $ Unit price factor Total effect of changes in sales Effect of changes in variable cost of goods sold: Variable cost quantity factor $ Unit cost factor Total effect of changes in variable cost of goods sold Effect of changes in selling and administrative expenses: Variable cost quantity factor $ Unit cost factor Total effect of changes in selling and administrative expenses Actual contribution margin $ 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 decrease of $3.00 had the effect of increasing sales. However, we lost control over the variable cost of goods sold and variable selling and administrative expenses. Let’s look into these expenses and get them under control! Also, let’s consider decreasing the sales price to $60 to increase sales further.Do you agree or disagree with the president's proposal and which reason would best explain your decision about the data? Agree with the president because both total variable cost of goods sold and total variable selling and administrative expenses have gone up along with the increase in sales indicating insignificant economies of scale that management can work on. Disagree with the president because the unit cost factor for the variable selling and administrative expenses cancels out the variable cost quantity factor for the variable selling and administrative expenses, which makes an investigation of expenses an unnecessary idea. Agree with the president because the total change in sales between actual and planned levels is greater than the total change in contribution margin, making more sales a way to decrease losses. Agree with the president because the per unit contribution margin for the actual level is less than the per unit contribution margin for the planned level, making more sales a way to decrease losses. Disagree with the president because the majority of the increase in the variable cost of goods sold was due to the variable cost quantity factor, so dropping the price may be even more negative for the company. The correct answer is:

Mathews Company manufactures only one product. For the year ended December 31, 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: Actual Planned Difference—Increase (Decrease) Sales $2,277,000 $2,070,000 $207,000 Variable costs: Variable cost of goods sold $1,035,000 $990,000 $45,000 Variable selling and administrative expenses 828,000 540,000 288,000 Total variable costs $1,863,000 $1,530,000 $333,000 Contribution margin $414,000 $540,000 $(126,000) Number of units sold 34,500 30,000 Per unit: Sales price $66 $69 Variable cost of goods sold 30 33 Variable selling and administrative expenses 24 18 Required: 1. Prepare a contribution margin analysis report for the year ended December 31. Mathews Company Contribution Margin Analysis For the Year Ended December 31 Planned contribution margin $ Effect of changes in sales: Sales quantity factor $ Unit price factor Total effect of changes in sales Effect of changes in variable cost of goods sold: Variable cost quantity factor $ Unit cost factor Total effect of changes in variable cost of goods sold Effect of changes in selling and administrative expenses: Variable cost quantity factor $ Unit cost factor Total effect of changes in selling and administrative expenses Actual contribution margin $ 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 decrease of $3.00 had the effect of increasing sales. However, we lost control over the variable cost of goods sold and variable selling and administrative expenses. Let’s look into these expenses and get them under control! Also, let’s consider decreasing the sales price to $60 to increase sales further.Do you agree or disagree with the president's proposal and which reason would best explain your decision about the data? Agree with the president because both total variable cost of goods sold and total variable selling and administrative expenses have gone up along with the increase in sales indicating insignificant economies of scale that management can work on. Disagree with the president because the unit cost factor for the variable selling and administrative expenses cancels out the variable cost quantity factor for the variable selling and administrative expenses, which makes an investigation of expenses an unnecessary idea. Agree with the president because the total change in sales between actual and planned levels is greater than the total change in contribution margin, making more sales a way to decrease losses. Agree with the president because the per unit contribution margin for the actual level is less than the per unit contribution margin for the planned level, making more sales a way to decrease losses. Disagree with the president because the majority of the increase in the variable cost of goods sold was due to the variable cost quantity factor, so dropping the price may be even more negative for the company. The correct answer is:

College Accounting (Book Only): A Career Approach

13th Edition

ISBN:9781337280570

Author:Scott, Cathy J.

Publisher:Scott, Cathy J.

ChapterE: Departmental Accounting

Section: Chapter Questions

Problem 3P

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Question

The following data have been gathered from the accounting records for the year ended December 31:

	Actual	Planned	Difference—Increase (Decrease)
Sales	$2,277,000		$2,070,000	$207,000
Variable costs:
Variable cost of goods sold	$1,035,000		$990,000	$45,000
Variable selling and administrative expenses	828,000		540,000	288,000
Total variable costs	$1,863,000		$1,530,000	$333,000
Contribution margin	$414,000		$540,000	$(126,000)
Number of units sold	34,500		30,000
Per unit:
Sales price	$66		$69
Variable cost of goods sold	30		33
Variable selling and administrative expenses	24		18

Required:

1. Prepare a contribution margin analysis report for the year ended December 31.

Mathews Company
Contribution Margin Analysis
For the Year Ended December 31
Planned contribution margin		$
Effect of changes in sales:
Sales quantity factor	$
Unit price factor
Total effect of changes in sales
Effect of changes in variable cost of goods sold:
Variable cost quantity factor	$
Unit cost factor
Total effect of changes in variable cost of goods sold
Effect of changes in selling and administrative expenses:
Variable cost quantity factor	$
Unit cost factor
Total effect of changes in selling and administrative expenses
Actual contribution margin		$

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 decrease of $3.00 had the effect of increasing sales. However, we lost control over the variable cost of goods sold and variable selling and administrative expenses. Let’s look into these expenses and get them under control! Also, let’s consider decreasing the sales price to $60 to increase sales further.
Do you agree or disagree with the president's proposal and which reason would best explain your decision about the data?

Agree with the president because both total variable cost of goods sold and total variable selling and administrative expenses have gone up along with the increase in sales indicating insignificant economies of scale that management can work on.
Disagree with the president because the unit cost factor for the variable selling and administrative expenses cancels out the variable cost quantity factor for the variable selling and administrative expenses, which makes an investigation of expenses an unnecessary idea.
Agree with the president because the total change in sales between actual and planned levels is greater than the total change in contribution margin, making more sales a way to decrease losses.
Agree with the president because the per unit contribution margin for the actual level is less than the per unit contribution margin for the planned level, making more sales a way to decrease losses.
Disagree with the president because the majority of the increase in the variable cost of goods sold was due to the variable cost quantity factor, so dropping the price may be even more negative for the company.

The correct answer is:

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