EX 20-21 Contribution margin reporting and analysis for a service company

The management of East Coast Railroad Company introduced in Exercise 20-20 improved the profitability of the Atlanta/ Baltimore route in May by reducing the price of a railcar from $600 to $500. This price reduction increased the demand for rail services. Thus, the number of railcars increased by 275 railcars to a total of 700 railcars. This was accomplished by increasing the size of each train but not the number of trains. Thus, the number of train-miles was unchanged. All the activity rates remained unchanged.

A. Prepare a contribution margin report for the Atlanta/ Baltimore route for May. Calculate the contribution margin ratio in percentage terms to one decimal place.

B. Prepare a contribution margin analysis to evaluate managements actions in May. Assume that the May planned quantity, price, and unit cost was the same as April.