Question

The following costs result from the production and sale of 1,000 drum sets manufactured by Tight Drums Company for the year ended December 31. 2019. The drum sets sell for $500 each. The company has a 25% income tax rate. For each dollar of sales, how much is left to cover fixed costs and contribute to operating income.

Answer 1

$0.72

Step-by-step explanation:

total direct materials = $125,000

total variable selling costs = $15,000

total variable costs = $140,000

variable cost per unit = $140,000 / 1,000 units = $140 per unit

contribution margin ratio = (sales price - variable cost) / sales price = ($500 - $140) / $500 = 72%

this means that per dollar of sales, $0.72 are left to cover fixed costs and contribute to operating income