Question

Contribution Margin Variances We can put sales and cost together and calculate any variances between actual and expected contribution margin. Contribution margin variance = Actual contribution margin - Budgeted contribution margin This variance is favorable if the actual contribution margin earned is higher than the budgeted amount. Example: Sierra Cleaning Service (SCS) provides residential and commercial office cleaning services. SCS groups its services into two categories: residential and office. Last year, SCS showed the following budgeted and actual unit information: Residential Office $150 $100 Budgeted price Budgeted unit variable cost 100 70 Actual price 160 90 Actual unit variable cost 95 65 Complete the following budgeted and actual contribution margin statements (number of jobs for each service category are given beside Sales): Budgeted: Residential Office Total Sales (5,000 jobs; 2,000 jobs) Variable cost Contribution margin

Answer 1

Budgeted : Sales (5,000 jobs; 2,000 jobs) Variable cost Contribution Margin Residential $ 750,000 $ $ 500,000 $ $ 250,000 $ Office 200,000 $ 140,000 $ 60,000 $ Total 950,000 640,000 310,000 Actual: Sales (5,010 jobs; 2,300 jobs) Variable cost Contribution Margin Residential $ 816,000 $ $ 484,500 $ $ 331,500 $ Office Total 207,000 $1,023,000 149,500 $ 634,000 57,500 $ 389,000 The Contrbution Margin variance is ($ 389,000 - $ 310,000) $ 79,000 Favorable

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