The following costs result from the production and sale of 240,000 CD sets manufactured by Jawan Company for the year ended December 31, 2009. The CD sets sell for $9 each. The company has a 25% income tax rate.

Variable manufacturing costs

Plastic for CD sets . . . . . . . . . . . . . . . . . . . . $ 21,600

Wages of assembly workers . . . . . . . . . . . . . 300,000

Labeling . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,200

Variable selling costs

Sales commissions . . . . . . . . . . . . . . . . . . . . 24,000

Fixed manufacturing costs

Rent on factory . . . . . . . . . . . . . . . . . . . . . . 100,000

Factory cleaning service . . . . . . . . . . . . . . . . 75,000

Factory machinery depreciation . . . . . . . . . . 125,000

Fixed selling and administrative costs

Lease of office equipment . . . . . . . . . . . . . . . 120,000

Systems staff salaries . . . . . . . . . . . . . . . . . . 600,000

Administrative management salaries . . . . . . . 300,000

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.