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. Variable production costs Plastic for casing . . . . . . . . . . . . . . . . . . . . . . $17,000 Wages of assembly workers . . . . . . . . . . . . . 82,000 Drum stands . . . . . . . . . . . . . . . . . . . . . . . . . 26,000 Variable selling costs Sales commissions . . . . . . . . . . . . . . . . . . . . 15,000 Fixed manufacturing costs Taxes on factory . . . . . . . . . . . . . . . . . . . . . . . $ 5,000 Factory maintenance . . . . . . . . . . . . . . . . . . . 10,000 Factory machinery depreciation . . . . . . . . . . 40,000 Fixed selling and administrative costs Lease of equipment for sales staff . . . . . . . . 10,000 Accounting staff salaries . . . . . . . . . . . . . . . . 35,000 Administrative management salaries . . . . . . 125,000 Required 1. Prepare a contribution margin income statement for the year. 2. Compute its contribution margin per unit and its contribution margin ratio. Analysis Component 3. For each dollar of sales, how much is left to cover fixed costs and contribute to operating income?
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.
Variable production costs
Plastic for casing . . . . . . . . . . . . . . . . . . . . . . $17,000
Wages of assembly workers . . . . . . . . . . . . . 82,000
Drum stands . . . . . . . . . . . . . . . . . . . . . . . . . 26,000
Variable selling costs
Sales commissions . . . . . . . . . . . . . . . . . . . . 15,000
Fixed
Taxes on factory . . . . . . . . . . . . . . . . . . . . . . . $ 5,000
Factory maintenance . . . . . . . . . . . . . . . . . . . 10,000
Factory machinery
Fixed selling and administrative costs
Lease of equipment for sales staff . . . . . . . . 10,000
Accounting staff salaries . . . . . . . . . . . . . . . . 35,000
Administrative management salaries . . . . . . 125,000 Required
1. Prepare a contribution margin income statement for the year.
2. Compute its contribution margin per unit and its contribution margin ratio.
Analysis Component
3. For each dollar of sales, how much is left to cover fixed costs and contribute to operating income?
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