Question

The following costs result from the production and sale of 4.200 drum sets manufactured by Tight Drums Company for the year ended December 2017. The drum sets sell for $270 esch. The company has a 25% income tax rate $89,20 79,800 Variable production costs Plastic for Casing Wages of assembly workers Dr stands Variable selling costs Sales comissions Fixed manufacturing costs Taxes on factory Factory wantanance Factory machinery depreciation Fixed selling and administrative costs Lease of equipment for sales staff Accounting staff salaries Administrative a n t salaries 12,8 24, 84,80 24,80 74,80 Required 1. Prepare a contribution margin income statement for the company 2. Compute its contribution margin per unit and to contribution margin ratio

Answer 1

1.

Contribution margin income statement

Sales ( 4,200 x 270)		1,134,000
Variable expenses:
Plastic for casing	-88,200
Wages for assembly workers	-361,200
Drum stands	-126,000
Sales commission	-79,800
Total Variable expenses		-655,200
Contribution Margin		$478,800
Fixed Expenses:
Taxes on factory	-12,000
Factory maintenance	-24,000
Factory machinery depreciation	-84,000
Lease of equipment for sales staff	-24,000
Accounting staff salaries	-74,000
Administrative management salaries	-154,000
Total Fixed expenses		-372,000
Operating Income		$106,800
Income tax expense ( 106,800 x 25%)		-26,700
Net Income		$80,100

2.

Contribution margin per unit = Total contribution margin/ Number of units

= 478,800/4,200

= $114

Contribution margin ratio = Contribution margin ratio / Selling price per unit

= 114/270

= 42.22%

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