Question

The following costs result from the production and sale of 4,600 drum sets manufactured by Tight Drums Company for the year ended December 31, 2017. The drum sets sell for $310 each. The company has a 25% income tax rate. $133,400 432,400 174,800 124,200 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 9,000 18,000 78,000 18,000 68,000 148,000 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

Answer-1)-

TIGHT DRUMS COMPANY
CONTRIBUTION MARGIN INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31,2017
PARTICULARS		AMOUNT
		$
Sales	4600 units*$310 per unit	1426000
Less- Variable costs
Plastic for casing	$133400
Wages of assembly workers	$432400
Drum stands	$174800
Sales commissions	$124200
Total variable costs		864800
Contribution margin		561200
Less- Fixed costs
Taxes on factory	$9000
Factory maintenance	$18000
Factory machinery depreciation	$78000
Lease of equipment for sales staff	$18000
Accounting staff salaries	$68000
Administrative management salaries	$148000
Total fixed costs		339000
Income before income taxes		222200
Less- Income taxes	$222200*25%	55550
Net income		166650

Answer-2)- Contribution margin per unit = Total contribution margin/ Total sales units

= $561200/4600 units

= $122 per unit

Contribution margin ratio = (Total Contribution margin/Total sales)*100

= ($561200/$1426000)*100

= 39.35%