Question

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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. $ 17,000 82,000 26,000 15,000 Variable production costs Plastic for casing Wages of assembly workers Drum stands Variable selling costs Sales commissions Fixed manufacturing costs Taxes on factory Factory maintenance Factory machinery depreciation Fixed selling and administrative costs Lease of equipment for sales staff Accounting staff salaries Administrative management salaries 5,000 10,000 40,000 10,000 35,000 125,000 Required: 1. Prepare a contribution margin income statement for the year. 2. Compute its contribution margin per unit and its contribution margin ratio. 3. For each dollar of sales, how much is left to cover fixed costs and contribute to operating income? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Prepare a contribution margin income statement for the year. TIGHT DRUMS COMPANY Contribution Margin Income Statement For Year Ended December 31, 2019 Sales Variable costs:

Answer 1

Contribution Margin Per Unit is 360

Contribution Margin Ratio is 72%

Please find attached Contribution Margin Statement for detailed workings.

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1	Contribution Margin Income Statement for the year ended 31.12.2019
	Tight Drums Company
	Contribution Margin Income Statement for the year ended 31.12.2019
			$	$
	Revenue by way of Sales
	(1000*500)			500000
	Less: Variable Cost
	Plastic for Casing		17000
	Wages for assembly workers		82000
	Drum Stands		26000
	Variable sales commission		15000	140000
	Contribution Margin			360000
2	Contribution Margin per unit	Contribution Margin/No of drums	360000/1000	360
	Contribution Margin Ratio	Contribution Margin/Sales per unit	360/500	72%
3	For each dollar of sales 0.72 (72%) is left to cover fixed cost and contribute to operating income
	Tight Drums Company
	Contribution Margin Income Statement for the year ended 31.12.2019
			$	$
	Revenue by way of Sales
	(1000*500)			500000
	Less: Variable Cost
	Plastic for Casing		17000
	Wages for assembly workers		82000
	Drum Stands		26000
	Variable sales commission		15000	140000
	Contribution Margin			360000
	Less: Fixed Cost
	Taxes on factory		5000
	Factory Maintenance		10000
	Factory machinery depreciation		40000
	Lease of equipment for sales staff		10000
	Accounting staff salaries		35000
	Administrative management salaries		125000	225000
	Net Income			135000
	Note: Company income tax @ 25% is not to be considerd as it’s the tax on the revenue earned
	and does not form partof Contribution Margin Statement.