In: Accounting
The following costs result from the production and sale of 4,300
drum sets manufactured by Tight Drums Company for the year ended
December 31, 2019. The drum sets sell for $280 each. The company
has a 35% income tax rate.
Variable production costs | |||
Plastic for casing | $ | 98,900 | |
Wages of assembly workers | 378,400 | ||
Drum stands | 137,600 | ||
Variable selling costs | |||
Sales commissions | 90,300 | ||
Fixed manufacturing costs | |||
Taxes on factory | 13,000 | ||
Factory maintenance | 26,000 | ||
Factory machinery depreciation | 86,000 | ||
Fixed selling and administrative costs | |||
Lease of equipment for sales staff | 26,000 | ||
Accounting staff salaries | 76,000 | ||
Administrative management salaries | 156,000 | ||
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. Prepare a contribution margin income statement for the year.
Particulars | Amount | ||
Sales (4300*280) | 1204000 | ||
Variable costs: | |||
Plastic for casing | 98,900 | ||
Wages of assembly workers | 378,400 | ||
Drum Stands | 137,600 | ||
Sales Commissions | 90,300 | ||
Less:- Total variable costs | (705,200) | ||
Contribution margin | 498,800 | ||
Fixed costs:- | |||
Taxes on factory | 13,000 | ||
Factory maintenance | 26,000 | ||
Factory machinery depreciation | 86,000 | ||
Lease of equipment for sales staff | 26,000 | ||
Accounting staff salaries | 76,000 | ||
Administrative management salaries | 156,000 | ||
Less:-Total fixed costs | (383,000) | ||
Pre tax income | 115,800 | ||
Income tax (115800*35%) | (40530) | ||
Net income | 75,270 |
2. Compute its contribution margin per unit and its contribution margin ratio.
Amount per unit | |||||
Sales | 280 | ||||
Variable costs: | |||||
Plastic for casing | 23 | ||||
Wages of assembly workers | 88 | ||||
Drum Stands | 32 | ||||
Sales Commissions | 21 | ||||
Less:-Total variable costs | 164 | ||||
Contribution margin | 116 |
Contribution Margin= Sales-Variable costs
We have total variable costs = 164 = 59% of sales
contribution margin = 116 = 41% of sales