The following costs result from the production and sale of 1,000 drum sets manuf
ID: 2468810 • Letter: T
Question
The following costs result from the production and sale of 1,000 drum sets manufactured by Tight Drums Company for the year ended December 31, 2015. The drum sets sell for $500 each. The company has a 25% income tax rate.
Compute its contribution margin per unit and its contribution margin ratio. Prepare a contribution margin income statement. Interpret the contribution margin and contrubition margin ratio.
Variable production costs Plastic for casing $ 17,000 Wages of assembly workers 82,000 Drum stands 26,000 Variable selling costs Sales commissions 15,000 Fixed manufacturing costs Taxes on factory 5,000 Factory maintenance 10,000 Factory machinery depreciation 40,000 Fixed selling and administrative costs Lease of equipment for sales staff 10,000 Accounting staff salaries 35,000 Administrative management salaries 125,000Compute its contribution margin per unit and its contribution margin ratio. Prepare a contribution margin income statement. Interpret the contribution margin and contrubition margin ratio.
Explanation / Answer
Statement showing computations Particulars Amount Sales Revenue = 1,000*500 500,000.00 Variable Costs: Plastic for casing 17,000.00 Wages of assembly workers 82,000.00 Drum stands 26,000.00 Sales commissions 15,000.00 Total Variable costs 140,000.00 Contribution = 500,000 - 140,000 360,000.00 Fixed Costs: Taxes on factory 5,000.00 Factory maintenance 10,000.00 Factory machinery depreciation 40,000.00 Lease of equipment for sales staff 10,000.00 Accounting staff salaries 35,000.00 Administrative management salaries 125,000.00 Total fixed Costs 225,000.00 Income = Contribution - FC 135,000.00 Taxes @25% 33,750.00 Net Income 101,250.00 Contribution Margin per unit= 360,000/1,000 360.00 CM Ratio = 360,000/500,000 0.72
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