Johnston Company (JC) sells two types of bicycles with details as follows for 2022. Required: 1. Calculate the budgeted contribution margin for each model. 2. Calculate the following variances:
| Plan | Mountain | Road |
| Expected total industry unit sales | 96,000 | 170,000 |
| Budgeted JC unit sales | 8,400 | 34,000 |
| Budgeted selling price per unit | 1,200 | 1,600 |
| Budgeted variable costs per unit | 968 | 1,258 |
| Actuals | ||
| Actual total industry unit sales | 120,000 | 200,000 |
| Actual JC unit sales | 12,000 | 36,000 |
| Actual selling price per unit | 1,240 | 1,575 |
| Actual variable cost per unit | 1,000 | 1,275 |
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Solution – Budgeted Contribution Margin
Here’s the step-by-step solution:
1. Calculation
The contribution margin is calculated using the formula:
Contribution Margin = Selling Price per Unit − Variable Cost per Unit
We’ll calculate this for both Mountain and Road bikes.
Mountain Bike (Contribution Margin)
Budgeted Selling Price per Unit = $1,200
Budgeted Variable Costs per Unit=$968
Using the formula: Contribution Margin (Mountain) = 1,200−968=$232 per unit
Road Bike (Contribution Margin)
Budgeted Selling Price per Unit=$1,600
Budgeted Variable Costs per Unit=$1,258
Using the formula: Contribution Margin (Road)=1,600 − 1,258 = $342 per unit
| Mountain | Road | |
| Selling price | $1,200 | $1,600 |
| Variable costs | 968 | 1,258 |
| Budgeted contribution margin per unit | $232 | $342 |
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