Question

In: Accounting

The following costs result from the production and sale of 4,300 drum sets manufactured by Tight...

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?

Solutions

Expert Solution

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


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