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.
3. Interpret the contribution margin and contribution margin ratio from part 2.