Contribution Margin Variance Iliff, Inc., produces and sells two types of countertop ovens—the toaster oven and the convection oven. Budgeted and actual data for the two models are shown below. Budgeted Amounts: Toaster Oven Convection Oven Total Sales: ($100 × 26,000) $2,600,000 ($145 × 16,000) $2,320,000 $4,920,000 Variable expenses 455,000 750,000 1,205,000 Contribution margin $2,145,000 $1,570,000 $3,715,000 Actual Amounts: Toaster Oven Convection Oven Total Sales: ($80 × 24,500) $1,960,000 ($165 × 13,500) $2,227,500 $4,187,500 Variable expenses 500,000 703,400 1,203,400 Contribution margin $1,460,000 $1,524,100 $2,984,100 Required: 1. Calculate the contribution margin variance.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Contribution Margin Variance
Iliff, Inc., produces and sells two types of countertop ovens—the toaster oven and the convection oven. Budgeted and actual data for the two models are shown below.
Budgeted Amounts:
| Toaster Oven |
Convection Oven |
Total | ||||
| Sales: | ||||||
| ($100 × 26,000) | $2,600,000 | |||||
| ($145 × 16,000) | $2,320,000 | $4,920,000 | ||||
| Variable expenses | 455,000 | 750,000 | 1,205,000 | |||
| Contribution margin | $2,145,000 | $1,570,000 | $3,715,000 |
Actual Amounts:
| Toaster Oven |
Convection Oven |
Total | ||||
| Sales: | ||||||
| ($80 × 24,500) | $1,960,000 | |||||
| ($165 × 13,500) | $2,227,500 | $4,187,500 | ||||
| Variable expenses | 500,000 | 703,400 | 1,203,400 | |||
| Contribution margin | $1,460,000 | $1,524,100 | $2,984,100 |
Required:
1. Calculate the contribution margin variance.
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