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In: Accounting

Problem 21-1A Contribution margin income statement and contribution margin ratio LO A1 The following costs result...

Problem 21-1A Contribution margin income statement and contribution margin ratio LO A1

The following costs result from the production and sale of 4,150 drum sets manufactured by Tight Drums Company for the year ended December 31, 2017. The drum sets sell for $265 each. The company has a 40% income tax rate.

  

Variable production costs
Plastic for casing $ 83,000
Wages of assembly workers 352,750
Drum stands 120,350
Variable selling costs
Sales commissions 74,700
Fixed manufacturing costs
Taxes on factory 11,500
Factory maintenance 23,000
Factory machinery depreciation 83,000
Fixed selling and administrative costs
Lease of equipment for sales staff 23,000
Accounting staff salaries 73,000
Administrative management salaries 153,000


Required:

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

Complete this question by entering your answers in the tabs below.

Required 1

Required 2

Compute its contribution margin per unit and its contribution margin ratio. (Round Contribution margin ratio to nearest whole percentage.)
TIGHT DRUMS COMPANY
Contribution Margin Income Statement (partial)
For Year Ended December 31, 2017
Per Unit
Sales
Variable costs:
Drum stands
Plastic for casing
Plastic for casing
Plastic for casing
Total variable costs
Contribution margin

Required 1

Required 2

Solutions

Expert Solution

Ans.1 TIGHT DRUMS COMPANY
Contribution Margin Income Statement (partial)
For Year Ended December 31, 2017
Particulars Amount
Sales (4150*265) 1099750
Variable costs:
Plastic for casing 83000
Wages for assembly workers 352750
Drum stands 120350
Sales commissions 74700
Total Variable Costs 630800
Contribution Margin 468950
Fixed costs:
Taxes on factory 11500
Factory maintenance 23000
Factory machinery depreciation 83000
Lease of equipment for sale staff 23000
Accounting staff salaries 73000
Administrative management salaries 153000
Total Fixed Costs: 366500
Profit before taxes 102450
Less: Income taxes @40% 40980
Net income (Profit after taxes) 61470
Ans.2
Particulars Amount
Selling price per unit 265
Variable costs:
Plastic for casing 20
Wages for assembly workers 85
Drum stands 29
Sales commissions 18
Variable Cost per unit 152
Contribution Margin per unit 113
*Calculation of variable cost per unit:
Variable cost per unit = Total variable cost / Sales units
Variable costs:
Plastic for casing 83000 / 4150                               = 20
Wages for assembly workers 352750 / 4150 = 85
Drum stands 120350 / 4150 = 29
Sales commissions 74700 / 4150 = 18
Contribution margin per unit = Selling price per unit - Variable cost per unit
Contribution margin ratio   = Contribution margin per unit / Selling price per unit * 100
113 / 265 * 100
42.64
or         43%

ekkarill92 answered 1 year ago
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