j71 600 400 because of the unfavourable change in the sales-mix, the most profitable product (bedsheets) has the least sales volume and the relatively less profitable products have much higher sales volume. As a sequel to such a change, the weighted average contribution margin based on planned mix which was 62.5 per cent (18,75,000 + 330,00,000) has decreased to 55.45 per cent. In real terms, the sales manager did not perform better than planned. (ii) The use of total sales, without reference to relative profitability of sales of different products, is unwise. It may not be possible to sell high-profit yielding products in budgeted volumes. If it is so, the sales manager could concentrate on low-profit yielding products, which may be more easily sold. The performance of the sales manager should better be judged by the following criterion: Sales rev- enue less (1) budgeted variable costs of production and (ii) actual selling costs. In the present system of transferring product at actual costs, the production department passes on its inefficiencies to the sales department, which should not be responsible for such costs. The sales manager should be charged with actual selling costs as he is responsible for incurrence of such costs and, above all, such costs are controllable at his level. P.21.7 The following is the profit plan prepared for ABC Itd for the current year ending March 31 ( in lakh): Particulars Product line Total Y z Sales revenue 1,000 2,000 Controllable variable cost to make and sell 500 360 280 1,140 Controllable contribution margin 860 Common firm-wide costs (fixed) 660 200 The income statement for the current year ended March 31 showed the following in lakh): Particulars Product line Total Y Z Sales 660 Less special discounts 640 660 880 2,180 Controllable variable costs to make and sell 332 400 Controllable contribution margin 308 260 Common firm-wide costs (fixed) 670 Profit 158 Two steps were taken to increase the sales of product line X: (a) Special discounts were granted on large orders and (b) An additional appropriation of 6 lakh was approved for advertising and sales promotion. Selling prices did not change in the current year. You are required to prepare an analysis of the changes in net income that would be helpful in fixing responsibility, using the contribution approach. 500 240 120 - X 660 20 880 2,200 20 620 1,352 828 260