Lawrence Company manufactures only one product. For the year ended December 31, 2012, the contribution margin decreased by $87,500 from the planned level of $375,000. The president of Lawrence Company has expressed some concern about this decrease and has requested a follow-up report. The following data have been gathered from the accounting records for the year ended December 31, 2012:

1. Prepare a contribution margin analysis report for the year ended December 31, 2012.
2. At a meeting of the board of directors on January 30, 2013, the president, after reviewing the contribution margin analysis report, made the following comment: €œIt looks as if the price decrease of $2.50 had the effect of increasing sales. However, we lost control over the variable cost of goods sold and variable selling and administrative expenses. Let€™s look into these expenses and get them under control! Also, let€™s consider decreasing the sales price to $50 to increase sales further.€ Do you agree with the president€™s comment? Explain.

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Difference- Increase or Actual Planned (Decrease) $ 1,581,250 $143,750 Sales $1,437,500 Less: Variable cost of goods sold .... Variable selling and administrative expenses. $ 718,750 575,000 $1,293,750 $ 287,500 $ 687,500 375,000 $1,062,500 $ 375,000 $ 31,250 200,000 $231,250 $ (87,500) Total ... Contribution margin Number of units sold . 28,750 25,000 Per unit: Sales price ... $57.50 $55.00 Variable cost of goods sold Variable selling and administrative expenses 25.00 27.50 20.00 15.00