If the variable cost of goods sold totaled $90,000 for the year (18,000 units at $5.00 each) and the planned variable cost of goods sold totaled $86,400 (16,000 units at $5.40 each), the effect of the quantity factor on the change in contribution margin is:
A) $10,800 decrease
B) $10,800 increase
C) $10,000 increase
D) $10,000 decrease

Question

Quizplus · Accepted Answer

The contribution margin per unit can be calculated as follows:
Contribution margin per unit = Selling Price per unit - Variable Cost per unit
For the year, the contribution margin is:
Contribution margin = Total Sales - Variable Cost of Goods Sold
= (18,000 units x $5.00 per unit) - $90,000
= $90,000 - $90,000
= $0
For the planned variable cost of goods sold, the contribution margin is:
Contribution margin = Total Sales - Variable Cost of Goods Sold
= (16,000 units x $5.40 per unit) - $86,400
= $86,400 - $86,400
= $0
Therefore, the quantity factor has no effect on the change in contribution margin, and the difference in variable cost of goods sold of $3,600 ($90,000 - $86,400) is irrelevant. The correct answer is A, $10,800 decrease, which is the change in total variable cost of goods sold from $90,000 to $86,400.

If the Variable Cost of Goods Sold Totaled $90,000 for the Year