The following costs result from the production and sale of 12,000 CD sets manufactured by Gilmore Company for the year ended December 31, 2013. The CD sets sell for $ 18 each. The company has a 25% income tax rate.

Variable manufacturing costs

Plastic for CD sets . . . . . . . . . . . . . . . . . . . . . . $ 1,500

Wages of assembly workers . . . . . . . . . . . . . . . 30,000

Labeling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000

Variable selling costs

Sales commissions . . . . . . . . . . . . . . . . . . . . . . . 6,000

Fixed manufacturing costs

Rent on factory . . . . . . . . . . . . . . . . . . . . . . . . . 6,750

Factory cleaning service . . . . . . . . . . . . . . . . . . 4,520

Factory machinery depreciation . . . . . . . . . . . . 20,000

Fixed selling and administrative costs

Lease of office equipment . . . . . . . . . . . . . . . . . 1,050

Systems staff salaries . . . . . . . . . . . . . . . . . . . . . 15,000

Administrative management salaries . . . . . . . . . 120,000

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.