Question

Ch 18 Homework 1 Problem 18-1A Contribution margin income statement and contribution margin ratio LO A1 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, 2017. The drum sets sell for $500 each. The company has a 25 % Income tax rate. 166 points Variable production costs Plastic for casing Wages of assenbly workers Drun stands $ 17,000 82,000 26,000 eBook Variable selling costs Sales comnissions 15,000 Fixed sanufacturing costs Taxes on factory Factory maintenance Factory machinery depreciation Fixed selling and adeinistrative costs Lease of equipment for sales staff Print s,000 10,000 40,000 References 10,0e0 Accounting staff salaries Adsinistrative managenent salaries 35, eee 125,e00 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: Contribution Margin Income Statement:
	Per unit	Amount $
Sales (1000 drums)	500	500000
Less: Variable costs:
Plastic for casing	17	17000
Wages of assembly workers	82	82000
Drum stands	26	26000
sales commissions	15	15000
Total Variable costs	140	140000
Contribution	360	360000
Fixed Costs:
Taxes on factory		5000
Factory maintenance		10000
Factory Machi. Dep.		40000
Lease of equipment for sales staff		10000
Accounting staff salaries		35000
Administrative management salaries		125000
Total Fixed Costs		225000
Income before tax		135000
Less: taxes		33750
Net Income		101250
2) Contribution margin per unit = $360 per drum
Contribution margin ratio = contribution per unit / Selling price per unit
Contribution margin ratio = 360/500 = 72%