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, 2019. The drum sets sell for $310 each. The company has a 25% income tax rate.

Variable production costs
Plastic for casing	$	133,400
Wages of assembly workers		432,400
Drum stands		174,800
Variable selling costs
Sales commissions		124,200
Fixed manufacturing costs
Taxes on factory		9,000
Factory maintenance		18,000
Factory machinery depreciation		78,000
Fixed selling and administrative costs
Lease of equipment for sales staff		18,000
Accounting staff salaries		68,000
Administrative management salaries		148,000

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?

Prepare a contribution margin income statement for the year.

	TIGHT DRUMS COMPANY Contribution Margin Income Statement For Year Ended December 31, 2019 Sales Variable costs: Total variable costs Contribution margin Fixed costs Total fixed costs

	TIGHT DRUMS COMPANY Contribution Margin Income Statement (partial) For Year Ended December 31, 2019 Per Unit Sales Variable costs: Total variable costs Contribution margin

	For each dollar of sales, how much is left to cover fixed costs and contribute to operating income?

Answer 1

1. Contribution Margin Income Statement-

Particulars	Per Unit	Total Units(4600)
Sales	310	1426000
Plastic for casing	29	133400
Wages of assembly workers	94	432400
Drum stands	38	174800
Sales commissions	27	124200
Contribution	122	561200
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
		222200

2. Contribution Margin per unit- 122, Contribution Margin Ratio- 122/310*100= 39.35%

3.For each dollar of sales, .3935 is left to cover fixed costs and contribute to operating income