Question

Problem 18-1A Contribution margin income statement and contribution margin ratio LO A1 The following costs result from the production and sale of 4.850 drum sets manufactured by Tight Drums Company for the year ended December 31, 2017. The drum sets sell for $335 each. The company has a 30% income tax rate. $164,900 480,150 288,550 oncos 155,200 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 6,500 13,000 73,000 13,000 63,000 143,000 Required: 1. Prepare a contribution margin income statement for the company. 2. Compute its contribution margin per unit and its contribution margin ratio.

Answer 1

$ 1,624,750 Less: Contribution Margin income Statement Particulars Sales Variable costs Plastic for casing $ 164,900 Wages of assembly workers $ 480,150 Drum stands $ 208,550 Contribution Fixed Costs Taxes on factory $ 6,500 Factory Maintenance $ 13,000 Factory machinery depreciation $ 73,000 Operating profit $ $ 853,600 771,150 Less: $ $ 92,500 678,650 Contribution margin per unit = 771150 4850 = $ 159 Contribution margin ratio = Contribution * 100 Sales = 771150 * 100 1624750 = 47.46%