Question

The following costs result from the production and sale of 4,550 drum sets manufactured by Tom Thompson Company for the year ended December 31, 2013. The drum sets sell for $305 each.
The company has a 40% income tax rate. Variable production costs Plastic for casing $ 127,400 Wages of assembly workers 423,150 Drum stands 168,350 Variable selling costs Sales commissions 118,300 Fixed manufacturing costs Taxes on factory 9,500 Factory maintenance 19,000 Factory machinery depreciation 79,000 Fixed selling and administrative costs Lease of equipment for sales staff 19,000 Accounting staff salaries 69,000 Administrative management salaries 149,000 Required: 1. Prepare a contribution margin income statement for the company.2. Compute its contribution margin per unit.

Answer 1

Answer:

See below.

Explanation:

Contribution margin income statement is as follows,

Sales (4,550*305)                                 1,387,750

Less: Variable costs

Plastic for casting                                  127,400

Wages                                                     423,150

Drum Stand                                             168,350

Variable selling                                        118,300

Contribution                                          550,550

Less: Fixed costs                            

Taxes on factory                                    9,500

Maintenance                                           19,000

Depreciation                                           79,000

Lease of equipment                                19,000

Accounting staff                                      69,000

Admin staff                                             149,000

Profit before tax                                    206,050

Tax @ 40%                                                82,420

Profit after tax                                           123,630

Contribution margin per unit can be calculated as,

Contribution margin / unit = Total contribution / Number of units

Contribution Margin / unit = 550,550 / 4550 = $121/unit

Contribution margin % = 121/305 = 39.6%

Hope hat helps.