Question

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, 2019. The drum sets sell for $500 each. The company has a 25% income tax rate. $ 17,000 82,000 26,000 15,000 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 5,000 10,000 40,000 10,000 35,000 125,000 Required: 1. Prepare a contribution margin income statement for the year 2. Compute its contribution margin per unit and its contribution margin ratio. 3. For each dollar of sales, how much is left to cover fixed costs and contribute to operating income?

Answer 1

Contribution Margin Income Statement - Tight Drums Company
Sales (1000X $500)		$500,000.00
Less: Variable cost
Variable production Cost
Plastic for casting	$17,000.00
Wages of Assembly Worker's	$82,000.00
Drum Stand	$26,000.00
Variable Selling Cost
Sales Comission	$15,000.00
Total Variable cost		$140,000.00
Contribution		$360,000.00
Less: Fixed Cost
Fixed Manufacturing Cost
Tax on Factory	$5,000.00
Factory Maintainance	$10,000.00
Factory Machinery Depreciation	$40,000.00
Fixed Selling & Administrative Expense
Lease of Equipment	$10,000.00
Accounting Staff Slaries	$35,000.00
Admin Management Salaries	$125,000.00
Total Fixed Cost		$225,000.00
Net Income before Tax		$135,000.00
Less: Tax @ 25%		$33,750.00
Net Income		$101,250.00

Computation of CM per Unit & CM Ratio
Total Contribution	$360,000.00
No. of Unit sold	1000
Contribution Margin per Unit ( Total Contribution/ No. of Unit Sold	360
Contribution Margin Ratio= CM per Unit/ Selling Price per Unit
$360/500=72%

Part-3

$360000 is left to cover Fixed Cost & Contribute to Operating Income

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