The following costs result from the production and sale of 4,800 drum sets manuf

Question

The following costs result from the production and sale of 4,800 drum sets manufactured by Tight Drums Company for the year ended December 31, 2017. The drum sets sell for $330 each. The company has a 25% income tax rate Variable production costs Plastic for casing wages of assembly workers Drum stands $158,4ee 470,400 201,600 Variable selling costs Sales commissions 148,8ee Fixed manufacturing costs Taxes on factory Factory maintenance Factory machinery depreciation 7,0e0 14,90e 74,900 Fixed selling and administrative costs Lease of equipment for sales staff Accounting staff salaries Administrative management salaries 14,8ee 64,00e 144,8ee Requirec 1. Prepare a contribution margin Income statement for the company 2. Compute its contribution margin per unit and its contribution margin ratio.

Explanation / Answer

1) Contribution Margin Income Statement Sales (4,800*330)= 1584000 Variable costs: Plastic for casing 158,400 Wages of assembly workers 470,400 Drum Stands 201,600 Sales Commissions 148,800 total variable costs 979,200 Contribution margin 604,800 Fixed costs Taxes on factory 7,000 Factory maintenance 14,000 Factory machinery depreciation 74,000 lease of equipment for sales staff 14,000 Accounting staff salaries 64,000 Administrative management salaries 144,000 total fixed costs 317,000 Pre tax income 287,800 income tax (287,800*25%) 71950 Net income 215,850 2) Contribution margin income statement (partial) Sales 330 Variable costs: Plastic for casing 33 Wages of assembly workers 98 Drum Stands 42 Sales Commissions 31 total variable costs 204 Contribution margin 126 Contribution margin ratio Sales 330 100% Variable costs 204 62% Contribution margin 126 38%

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