The following costs result from the production and sale of 12,000 CD sets manufactured by Gilmore Company for the year ended December 31, 2017. 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.