Question

Problem 21-1A Contribution margin income statement and contribution margin ratio LO A1 The following costs result from the production and sale of 4,000 drum sets manufactured by Tight Drums Company for the year ended December 31, 2017. The drum sets sell for $250 each. The company has a 25% income tax rate. $ 68,000 328,000 104,000 60,000 Variable production costs Plastic for casing Wages of assembly workers Drum stands Variable selling costs Sales commissions Fixed manufacturing costs Taxes on factory Factory maintenance Factory machinery depreciation Fixed selling and administrative costs Lease of equipment for sales staff Accounting staff salaries Administrative management salaries 10,000 20,000 80,000 20,000 70,000 150,000 Required: 1. Prepare a contribution margin income statement for the company. 2. Compute its contribution margin per unit and its contribution margin ratio. Complete this question by entering your answers in the tabs below. Required Required Prepare a contribution margin income statement for the company. TIGHT DRUMS COMPANY Contribution Margin Income Statement For Year Ended December 31, 2017 Sales Variable costs: Total variable costs Contribution margin Fixed costs Total fixed costs Required 1 Required 2 >

Answer 1

Solution 1:

Tight Drums Company
Contribution margin income statement
For the year ended December 31, 2017
Sales (4000*$250)		$10,00,000
Less: Variable Cost:
Plastic for Casing	$68,000
Wages for assembly Workers	$3,28,000
Drum stands	$1,04,000
Sales Commissions	$60,000
Total variable costs		$5,60,000
Contribution Margin		$4,40,000
Less: Fixed Costs
Taxes on factory	$10,000
Factory Maintenance	$20,000
Factory Machinery Depreciation	$80,000
Lease of Equipment for sales staff	$20,000
Accounting staff salaries	$70,000
Administrative management salaries	$1,50,000
Total Fixed Costs		$3,50,000
Income Before Tax		$90,000
Less: Income taxes (25%)		$22,500
Net Income		$67,500

SOlution 2:

Tight Drums Company
Contribution margin income statement (Partial)
For the year ended December 31, 2017
		Per unit
Sales		$250
Less: Variable Cost:
Plastic for Casing	$17
Wages for assembly Workers	$82
Drum stands	$26
Sales Commissions	$15
Total variable costs		$140
Contribution Margin		$110
Contribution Margin		$110
/Sales		$250
Contribution margin ratio		44%