Farr Industries Inc. manufactures only one product. For the year ended December 31, the contribution margin increased by $560,000 from the planned level of $5,200,000. The president of Farr Industries Inc. has expressed concern about such a small increase in contribution margin and has requested a follow-up report.

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

	Actual	Planned	Difference- Increase (Decrease)
Sales	$30,000,000	$28,600,000	$1,400,000
Variable Costs:
Variable cost of goods sold	$21,600,000	$21,450,000	$150,000
Variable selling and administrative expenses	2,640,000	1,950,000	690,000
Total variable costs	$24,240,000	$23,400,000	$840,000
Contribution margin	$5,760,000	$5,200,000	$560,000
Number of units sold	120,000	130,000
Per unit:
Sales prices	$250	$220
Variable cost of goods sold	180	165
Variable selling and administrative expenses	22	15

Instructions:

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

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 $30 had the effect of increasing sales. However, this was a trade-off since sales volume decreased. Also, variable cost of goods sold per unit increased by $15 more than planned. The variable selling and administrative expenses appear out of control. They increased by $7 per unit more than was planned, which is an increase of over 47% more than was planned. Let's look into these expenses and get them under control! Also, let's consider increasing the sales price to $275 and continue this favorable trade-off between higher price and lower volume.

Do you agree with the president's comment? Explain.