Share
Explore BrainMass

Contribution Margin Income Statement

The following costs result from the production and sale of 4,000 drum sets manufactured by Vince Drum Company for the year ended December 31, 2011. The drum sets sell for $250 each. The company has a 25% income tax rate.

Variable production costs

Plastic for casing............................................$68,000

Wages of assembly workers...............................328,000

Drum stands.................................................104,000

Variable sellings costs

Sales commissions...........................................60,000

Fixed manufacturing costs

Taxes on factory.............................................10,000

Factory maintenance.........................................20,000

Factory machinery depreciation.....................................80,000.

Fixed selling administrative costs

Lease of equipment for sales staff........................ 20,000

Accounting staff salaries.....................................70,000

Administrative management salaries......................150,000

1. Prepare a contribution margin income statement for the company.

2. Compute its contribution margin and contribution margin ratio.

3. Interpret the contribution margin ratio from part 2.

Solution Summary

Contribution margin income statements are examined. Variable production costs are given.

$2.19