Problem:
Aromatic Coffee, Inc., sells two types of coffee, Colombian and Blue Mountain. The monthly budget for U.S. coffee sales is based on a combination of last year's performance, a forecast of industry sales, and the company's expected share of the U.S. market. The following information is provided for March:
Actual Budget
Colombian Blue Mountain Colombian Blue Mountain
Sales in pounds 7,000 lbs. 8,000 lbs. 6,400 lbs. 8,600 lbs
Price per pound $25 $30 $25 $30
Variable cost 11 14 12 13
per pound
Contribution margin $14 $16 $13 $17
Budgeted and actual fixed corporate-sustaining costs are $60,000 and $72,000, respectively.
Required:
a. Calculate the actual contribution margin for the month (in total dollars).
b. Calculate the contribution margin for the static budget (in total dollars).
c. Calculate the contribution margin for the flexible budget (in total dollars. Hint: remember what the definition is of a flexible budget).
d. Determine the total static-budget variance, the total flexible-budget variance, and the total sales-volume variance in terms of the contribution margin.