If variable cost of goods sold totaled $80,000 for the year (16,000 units at $5.00 each)and the planned variable cost of goods sold totaled $86,250 (15,000 units at $5.75 each),the effect of the quantity factor on the change in contribution margin is:
A) $5,000 decrease
B) $5,000 increase
C) $5,750 increase
D) $5,750 decrease

Question

Quizplus · Accepted Answer

The contribution margin per unit can be calculated as follows:
- Current contribution margin per unit = Price per unit - Variable cost per unit = $5.00 - $0.00 = $5.00
- Planned contribution margin per unit = Price per unit - Variable cost per unit = $5.75 - $0.00 = $5.75

Using these figures, the change in the contribution margin due to the quantity factor can be calculated as follows:
- Current contribution margin = 16,000 units x $5.00 = $80,000
- Planned contribution margin = 15,000 units x $5.75 = $86,250
- Change in contribution margin = Planned contribution margin - Current contribution margin = $86,250 - $80,000 = $6,250
- However, this increase in contribution margin is due to a higher price per unit rather than a higher quantity of units sold. Therefore, we need to adjust for the price increase to isolate the effect of the quantity factor.
- Adjusted planned contribution margin = 15,000 units x $5.00 = $75,000
- Adjusted change in contribution margin = Adjusted planned contribution margin - Current contribution margin = $75,000 - $80,000 = -$5,000

Therefore, the effect of the quantity factor on the change in contribution margin is a decrease of $5,000. The correct answer is D.

If Variable Cost of Goods Sold Totaled $80,000 for the Year