Question

3. The Stub Company manufactures a product that is expected to incur $50 per unit in variable production costs and sell for $100 per unit. The sales commission is 5% of the sales price. Due to intense competition, Stub actually sold 200 units for $80 per unit. The actual variable production costs incurred were $60.00 per unit. Calculate the total contribution margin and contribution margin ratio at the expected price/costs and the actual price/costs. How might management use this information? Complete the expected contribution margin by entering the appropriate amounts to calculate the total contribution margin and contribution margin ratio. (Enter the contribution margin ratio to two decimal place, XXX%.) Expected Contribution Margin Net Sales Revenue Variable Costs Production Costs Sales Commission Contribution Margin Contribution Margin Ratio % Complete the actual contribution margin by entering the appropriate amounts to calculate the total contribution margin and contribution margin ratio. (Enter the contribution margin ratio to two decimal place, X.XX%.) Actual Contribution Margin Net Sales Revenue Variable Costs: Production Costs Sales Commission Contribution Margin Contribution Margin Ratio How might management use this information? The company may decide to The actual results varied significantly from the expected results, V Management should investigate the cause(s) for the difference in the the contribution margin. Also, because the prediction was significantly different from the actual results, management may also want to evaluate the methods the company uses to

Answer 1

Solution :
a. Expected total contribution margin and contribution margin ratio
	Particulars	Amount	Amount
	Net Sales Revenue   (200*100)		$20,000
	Variable Costs
	Production costs (200*50)	$10,000
	Sales commission (20000*5%)	$1,000	$11,000
	Contribution margin		$9,000
	Contribution margin %		45%
b. Actual total contribution margin and contribution margin ratio
	Particulars	Amount	Amount
	Net Sales Revenue   (200*80)		$16,000
	Variable Costs
	Production costs (200*60)	$12,000
	Sales commission (16000*5%)	$800	$12,800
	Contribution margin		$3,200
	Contribution margin %		20%