18-1

Question 2. Compute its contribution margin per unit and its contribution margin ratio.

The following costs result from the production and sale of 5,000 drum sets manufactured by Tight Drums Company for the year ended December 31, 2017. The drum sets sell for $350 each. The company has a 25% income tax rate.

Variable production costs

Plastic for casing

$

185,000

Wages of assembly workers

510,000

Drum stands

230,000

Variable selling costs

Sales commissions

175,000

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

2.

Compute its contribution margin per unit and its contribution margin ratio. (Round Contribution margin ratio to nearest whole percentage.)

TIGHT DRUMS COMPANY
Contribution Margin Income Statement (partial)
For Year Ended December 31, 2017
		Per Unit
Sales		$37
Variable costs:
Plastic for casing	185,000
Wages of assembly workers	510,000
Drum stands	230,000
Sales commissions	175,000
Total variable costs			1,100,000
Contribution margin		$130
Contribution Margin Ratio
Sales	$37	100%
Variable costs	1,100,000
Contribution margin	$130