The following costs result from the production and sale of 480,000 CD sets manufactured by Trace Company for the year ended December 31, 2011. The CD sets sell for $4.50 each. The company has a 25% income tax rate.
Variable manufacturing costs… |
|
Plastic for CD sets… | $ 43,200 |
Wages of assembly workers… | 600,000 |
Labeling… | 86,400 |
Variable selling costs |
|
Sales commissions… | 48,000 |
Fixed manufacturing costs |
|
Rent on factory… | 100,000 |
Factory cleaning service… | 75,000 |
Factory machinery depreciation.. | 125,000 |
Fixed selling and administrative costs… |
|
Lease of office equipment… | 120,000 |
Systems staff salaries… | 600,000 |
Administrative management salaries… | 300,000 |
Required
1. Prepare a contribution margin income statement for the company.
2. Compute its contribution margin per unit and its contribution margin ratio.
Analysis Component
3. Interpret the contribution margin and contribution margin ratio from part 2.
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