Answer:
Farr Industries Inc
Contribution Margin Analysis
Planned Contribution Margin $5,200,000.00
Effect of change in sales:
Sales quantity factor (120,000-130,000)x$220 ($2,200,000)
Unit price factor ($250 - $220)x120,000 $3,600,000
Total effect of change in sales $1,400,000.00
<em>Effect of changes in variable cost of goods sold:
</em>
Variable cost quantity factor (130,000-120,000)x $165 $1,650,000.00
Unit cost factor ($180-165) x 120,000 ($1,800,000.00)
Total effect of changes in variable cost of goods sold ($150,000.00)
<em>Effect of changes in variable selling and administrative expenses:
</em>
Variable cost quantity factor (130,000-120,000)x $15 $150,000.00
Unit cost factor ($22-$15)x 120,000 units ($840,000.00)
Total effect of changes in
variable selling and administrative expenses ($690,000.00)
Actual contribution margin $5,760,000.00
I disagree with the President, seeing as though we see that the majority of the decrease in the variable cost of the products sold is due to the variable cost factor and also to the variable sales and administrative expenses because the company made additional sales efforts to stay competitive at increased prices
