Problem: 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
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.