Question

he following costs result from the production and sale of 4,900 drum sets manufactured by Tight Drums Company for the year ended December 31, 2017. The drum sets sell for $340 each. The company has a 35% income tax rate.

  

Variable production costs
Plastic for casing	$	171,500
Wages of assembly workers		490,000
Drum stands		215,600
Variable selling costs
Sales commissions		161,700
Fixed manufacturing costs
Taxes on factory		6,000
Factory maintenance		12,000
Factory machinery depreciation		72,000
Fixed selling and administrative costs
Lease of equipment for sales staff		12,000
Accounting staff salaries		62,000
Administrative management salaries		142,000

Required:

1. Prepare a contribution margin income statement for the company.
2. Compute its contribution margin per unit and its contribution margin ratio.

TIGHT DRUMS COMPANY Contribution Margin Income Statement For Year Ended December 31, 2017 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, 2017 Per Unit Sales Variable costs: Total variable costs Contribution margin

Answer 1

1)	Contribution Margin Income Statement
Sales			(4900*340)			1666000
Variable costs:
Plastic for casing					171,500
Wages of assembly workers					490,000
Drum Stands					215,600
Sales Commissions					161,700
total variable costs						1,038,800
Contribution margin						627,200
Fixed costs
Taxes on factory					6,000
Factory maintenance					12,000
Factory machinery depreciation					72,000
lease of equipment for sales staff					12,000
Accounting staff salaries					62,000
Administrative management salaries					142,000
total fixed costs						306,000
Pre tax income						321,200
income tax		(321200*35%)				112420
Net income						208,780
2)
	Contribution margin income statement (partial)
Sales						340
Variable costs:
Plastic for casing					35
Wages of assembly workers					100
Drum Stands					44
Sales Commissions					33
total variable costs						212
Contribution margin						128
		Contribution margin ratio
Sales					340	100%
Variable costs					212	62%
Contribution margin					128	38%