Kingfisher School of Business and Finance

Dagupan City

ACCTG 7.1/6.1

Pricing and
Profitability Analysis
Case Study No. 3
by

Group 6

Submitted by:
Fajardo, Ashley Jane T.
Formaran, Daryl Mae A.
Gallardo, Rowell S.
Garcia, Jan Rico S.
Garcia, Reign Mikaella P.
Gocheng, Rafael B.
Gordovez, Jema.

Submitted to:
Ma’am Auriane Solano
Acctg 7.1/6.1 Instructor
 1. Outline the benefits that an organization realizes from segment reporting.
Evaluate segment reporting on a variable-costing basis versus an absorption-
costing basis.

There are numbers of benefits from segmental reporting that was later realized
by the organization. An example from the case is that the profitability of each segment
was spotlighted by the segmental reporting, unprofitable segments are then found for
the overall profit.
This type of reporting is more effective when done on a variable basis since
variable costing doesn’t require any permit to a manager for them to increase the profit
with the use of producing for inventories. However, it is still not easy for them to
determine if an unprofitable segment is contributing to profit under absorption costing.

2. Calculate the contribution margin, contribution margin volume, and sales mix
variances.

Total Actual Contribution Margin $1,493,000

2.1: Total Budget Contribution Margin -1,241,000
Contribution Margin Variance $252,000

$50,00
Budgeted Unit Sales (8,000+22,000+20,000) 0
2.2:
Actual Unit Sales (12,000+4,000+30,000) -46,000
Total $4,000
x
Budgeted Average contribution Per Unit
((1,241,000/50,000)) 24.82
Upscale Fixtures $99,28
Actual Contribution
Unit Sold Margin Volume Variance
$12,000 0
Less: Target Unit Sold -8,000 4,000
(550,000/8,00
Budgeted Contribution Per Unit 0)
Budgeted Average Contribution
Per Unit -24.82 x 43.93
$175,72
Total 0
 Mid-range Fixtures
Actual Unit Sold $4,000
Less: Budget Unit Sold -22,000 -18,000
(271,000/22,00
Budgeted Contribution Per Unit 0)
Budgeted Average Contribution
Per Unit -24.82 x-12.50
$225,00
0

Electronic Timing Devices

Actual Unit Sold $30,000
Less: Budget Unit Sold -20,000 10,000
(420,0000/20,000
Budgeted Contribution Per Unit )
Budgeted Average Contribution Per
Unit -24.82 x -3.82
    $-38,200

2.3:

Sales Mix Variance = (Upscales Fixture+ Mid-Range Fixture +Electronic

Timing Devices)
= (175,720+225,000+(-38,200))
= $362,520

3. Explain why the variance occurred. (CMA adopted)

Contribution Margin Variance = $252,000 - FAVORABLE

Contribution Margin Volume Variance = $99,280 - UNFAVORABLE
Sales Mix Variance = $362,520 - FAVORABLE

Since actual contribution margin is higher than projected, the contribution margin
variance is beneficial, and this occurred because of a shift in the sales mix. The high
contribution margin upscale lights sold for a substantially larger percentage of sales,
while the lower contribution margin mid-range lights sold for a lot lower percentage of
sales. It's worth noting that the actual number of units sold (46,000) was lower than
expected (50,000). As a result, the greater real contribution margin is due to a shift in
the sales mix.