Answer and Explanation:
The preparation of the contribution margin income statement for the company is presented below:
Tight Drums Company
Contribution margin income statement
For the year ended December 31, 2017
Sales (5,000 drums × $350) $1,750,000
Less: Variable cost
Plastic for casing -$185,000
Wages of assembly workers $510,000
Drum stands $230,000
Variable selling costs
Sales commissions $175,000
Total variable cost -$1,100,000
Contribution margin $650,000
Less: Fixed cost
Fixed manufacturing costs
Taxes on factory $5,000
Factory maintenance $10,000
Factory machinery depreciation $70,000
Fixed selling and administrative costs
Lease of equipment for sales staff $10,000
Accounting staff salaries $60,000
Administrative management salaries $140,000
Total fixed cost -$295,000
Net operating income $355,000
Less: income tax expense at 25% -$88,750
Net income $266,250
We simply deduct the variable cost and fixed cost from the sales revenue so that the net operating income could come and then deducted the income tax expense so that net income could arrive
