The following costs result from the production and sale of 4,000 drum sets manufactured by Tight...
Question:
The following costs result from the production and sale of 4,000 drum sets manufactured by Tight Drums Company for the year ended December 31, 2015. The drum sets sell for $250 each. The company has a 25% income tax rate.
| Variable production costs | |
| Plastic for casing | $68,000 |
| Wages of assembly workers | 328,000 |
| Drum stands | 104,000 |
| Variable selling costs | |
| Sales commissions | 60,000 |
| Fixed manufacturing costs | |
| Taxes on factory | 10,000 |
| Factory maintenance | 20,000 |
| Factory machinery depreciation | 80,000 |
| Fixed selling and administrative costs | |
| Lease of equipment for sales staff | 20,000 |
| Accounting staff salaries | 70,000 |
| Administrative management salaries | 150,000 |
a. Prepare a contribution margin income statement for the company.
b. Compute its contribution margin per unit and its contribution margin ratio. (Round Contribution margin ratio to the nearest whole percentage.)
Contribution margin income statement
In the contribution margin income statement, the variable cost is deducted from the sales revenue to calculate the contribution margin from which the fixed costs are deducted to arrive at the net operating income.
Answer and Explanation: 1
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a.) The contribution margin income statement will look like this:
Tight Drums Company
Contribution margin income statement for the year ended...
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Creating Contribution Margin Income Statements
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Chapter 8 / Lesson 10
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Contribution margin income statements subtract fixed costs from total sales to give a picture of how much is available for spending. Learn how these statements are produced, their importance to budgeting, and what distinguishes them from regular income statements.
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