Question

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, 2015. 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
Required:
Prepare contribution margin income statement for the company.

Answer 1

Answer:

Contribution margin income statement for the year ended December 31, 2015.

Sales (5,000 drum sets × $350)                             1,750,000

Less Variable Costs :

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     (1,100,000)

Contribution                                                               650,000

Less Fixed Cost :

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   (295,000)

Net Income before tax                                           355,000

Income tax expense                                                (88,750)

Income after tax                                                      266,250

Explanation:

A contribution margin income statement shows the contribution amounts and the net income after removing all fixed expenses from contribution.