The following costs result from the production and sale of 4,000 drum sets manufactured by Vince Drum Company for the year ended December 31, 2011. 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 sellings costs Sales commissions...........................................60,000 Fixed manufacturing costs Taxes on factory.............................................10,000 Factory maintenance.........................................20,000 Factory machinery depreciation . 80,000. Fixed selling administrative costs Lease of equipment for sales staff........................ 20,000 Accounting staff salaries.....................................70,000 Administrative management salaries......................150,000
Required 1. Prepare a contribution margin income statement for the company
2. Compute its contribution margin and contribution margin ratio. 3. Interpret the contribution margin ratio from part 2.