Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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. Lets look into these expenses and get them under control! Also, lets consider increasing the sales price to $160 and continue this favorable tradeoff between higher price and lower volume.

Do you agree with the presidents 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. Lets look into these expenses and get them under control! Also, lets consider increasing the sales price to $160 and continue this favorable tradeoff between higher price and lower volume.

Do you agree with the presidents 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.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing Theory

Authors: Ian Dennis

1st Edition

1138599700, 978-1138599703

More Books

Students also viewed these Accounting questions

Question

Conduct an effective performance feedback session. page 360

Answered: 1 week ago