Question

The following costs result from the production and sale of 4,450 drum sets manufactured by Tight Drums Company for the year ended December 31, 2019. The drum sets sell for $295 each. The company has a 30% income tax rate. Variable production costs Plastic for casing $ 115,700 Wages of assembly workers 404,950 Drum stands 155,750 Variable selling costs Sales commissions 106,800 Fixed manufacturing costs Taxes on factory 14,500 Factory maintenance 29,000 Factory machinery depreciation 89,000 Fixed selling and administrative costs Lease of equipment for sales staff 29,000 Accounting staff salaries 79,000 Administrative management salaries 159,000 Required: 1. Prepare a contribution margin income statement for the year. 2. Compute its contribution margin per unit and its contribution margin ratio.

Answer 1

See below

Step-by-step explanation:

1. Contribution margin income statement

Sales (4,450 × $295)

$1,312,750

Less: Variable costs

Plastic for casting

$115,700

Wages

$404,950

Drum stand

$155,750

Variable selling

$106,800

Contribution

$529,550

Less : Fixed costs

Taxes on factory

$14,500

Factory Maintenance

$29,000

Depreciation

$89,000

Lease of equipment

$29,000

Accounting staff salaries

$79,000

Admin management salaries

$159,000

Profit before tax

$130,050

Less :

Tax at 30%

$39,015

Profit after tax

$91,035

2. Contribution margin per unit

Contribution margin per unit = Total contribution / Number of units

Contribution margin per unit = $529,550 / 4,450

Contribution margin per unit = $119 per unit

•Contribution margin ratio

= Contribution margin per unit / Unit cost of drum

= $119 / $295

Contribution margin ratio = 40.34%