The following costs result from the production and sale of 4,000 drum sets manufactured by Tight...


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 workers328,000
Drum stands104,000
Variable selling costs
Sales commissions60,000
Fixed manufacturing costs
Taxes on factory10,000
Factory maintenance20,000
Factory machinery depreciation80,000
Fixed selling and administrative costs
Lease of equipment for sales staff20,000
Accounting staff salaries70,000
Administrative management salaries150,000

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


Chapter 8 / Lesson 10

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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