Question

The following costs result from the production and sale of 5,000 drum sets manufactured by Tight Drums Company for the year ended December 31, 2015. The drum sets sell for $350 each. The company has a 25% income tax rate.

Variable production costs
Plastic for casing $ 185,000
Wages of assembly workers 510,000
Drum stands 230,000
Variable selling costs
Sales commissions 175,000
Fixed manufacturing costs
Taxes on factory 5,000
Factory maintenance 10,000
Factory machinery depreciation 70,000
Fixed selling and administrative costs
Lease of equipment for sales staff 10,000
Accounting staff salaries 60,000
Administrative management salaries 140,000
Required:
Prepare contribution margin income statement for the company.

Answer 1

Contribution margin income statement for the year ended December 31, 2015.

Sales (5,000 drum sets × $350) 1,750,000

Less Variable Costs :

Variable production costs :

Plastic for casing 185,000

Wages of assembly workers 510,000

Drum stands 230,000

Variable selling costs :

Sales commissions 175,000 (1,100,000)

Contribution 650,000

Less Fixed Cost :

Fixed manufacturing costs :

Taxes on factory 5,000

Factory maintenance 10,000

Factory machinery depreciation 70,000

Fixed selling and administrative costs :

Lease of equipment for sales staff 10,000

Accounting staff salaries 60,000

Administrative management salaries 140,000 (295,000)

Net Income before tax 355,000

Income tax expense (88,750)

Income after tax 266,250

Step-by-step explanation:

A contribution margin income statement shows the contribution amounts and the net income after removing all fixed expenses from contribution.