ProblemsL. Farrah Industries Inc. manufactures only one product. For the year ended December 31, thecontribution margin increased by $560,000 from the planned level of $5,200,000. The president of L.Farrah Industries Inc. has expressed concern about such a small increase in contribution margin and hasrequested a follow-up report.The following data have been gathered from the accounting records for the year ended December 31:Financial CategoriesActualPlannedDifferenceSales30,000,000$28,600,000$ 1,400,000.00Variable costs:Variable cost of goods sold21,600,000$21,450,000$150,000Variable selling and admin expenses2,640,0001,950,000690,000Total variable costs24,240,00023,400,000840,000Contribution Margin5,760,0005,200,000560,000Number of units sold120,000130,000Per unitSales price2$250220Variable cost of goods soldVariable selling and admin expenses2$2$$2$1801652215a. Prepare a contribution margin analysis report for the year ended December 31.b. At a meeting of the board of directors on January 30, the president, after reviewing thecontribution 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 atrade-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% morethan was planned. Let's look into these expenses and get them under control. Also, let'sconsider increasing the sales price to $275 and continue this favorable trade-off between higherprice and lower volume."C.Do you agree with the president's comment? Explain.

L. Farrah 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 L. Farrah 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 for the year ended December 31:

L. Farrah 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 L. Farrah 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 for the year ended December 31:

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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