Question: 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 selling costs
Sales commissions . . . . . . . . . . . . . . . . . . . . . . 60,000
Fixed manufacturing costs
Taxes on factory . . . . . . . . . . . . . . . . . . . . . . . 10,000
Factory maintenance. . . . . . . . . . . . . . . . . . . . 20,000
Factory machinery depreciation . . . . . . . . . . . 80,000
Fixed selling and 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 per unit and its contribution margin ratio.
Analysis Component
3. Interpret the contribution margin and contribution margin ratio from part 2.