Requirement 1
To prepare:
Contribution Income Statement for Tight Drums Company
Requirement 1

Answer to Problem 1APSA
Solution:
Tight Drums Company | |||
Contribution Margin Income statement | |||
Sales | 500,000 | ||
Less: Variable costs | |||
Variable production costs | |||
Plastic for casting | 17,000 | ||
Wages for assembly workers | 82,000 | ||
Drum stands | 26,000 | ||
Variable selling costs | |||
Sales commissions | 15,000 | ||
Total variable costs | 140,000 | ||
Contribution margin | 360,000 | ||
Less: Fixed costs | |||
Fixed manufacturing costs | |||
Taxes on factory | 5,000 | ||
Factory maintenance | 10,000 | ||
Factory machinery | 40,000 | ||
Fixed selling and administration costs | |||
Lease of equipment for sales staff | 10,000 | ||
Accounting staff salaries | 35,000 | ||
Administrative management salaries | 125,000 | ||
Total fixed expenses | 225,000 | ||
Net Operating Income | 135,000 |
Explanation of Solution
The contribution income statement is prepared as under −
Given,
- Sales per price unit = $ 500
- Number of units sold = 1,000 drums Variable production costs −
- Plastic for casting = $ 17,000
- Wages for assembly workers = $ 82,000
- Drum stands = $ 26,000 Variable selling costs −
- Sales commissions = $ 15,000 Fixed manufacturing costs −
- Taxes on factory = $ 5,000
- Factory maintenance = $ 10,000
- Factory machinery depreciation = $ 40,000
- Fixed selling and administration costs
- Lease of equipment for sales staff = $ 10,000
- Accounting staff salaries = $ 35,000
- Administrative management salaries = $ 125,000
- Sales revenue −
- Total variable costs −
- Contribution Margin −
- Total fixed costs −
- Net operating income −
The net operating income of Tight Drums company is = $ 135,000.
Thus, the contribution Income Statement for Tight Drums Company has been prepared.
Requirement 2
To compute:
- Contribution Margin per unit
- Contribution Margin Ratio
Requirement 2

Answer to Problem 1APSA
Solution:
- Contribution Margin per unit = $ 360
- Contribution Margin Ratio = 72 %
Explanation of Solution
The contribution margin per unit and contribution margin ratio are calculated as under −
Given,
- Sales revenue = $ 500,000
- Number of units sold = 1,000 drums
- Total Contribution Margin = $ 360,000
- Contribution Margin per unit −
- Contribution Margin Ratio −
Thus, the contribution margin per unit and contribution margin ratio has been calculated.
To Interpret:
The contribution margin and contribution margin ratio.

Answer to Problem 1APSA
Solution:
The contribution margin explains how much the portion of sales is left after deducting the variable costs of the product. While the contribution margin ratio the percent of each sales dollar is available for fixed costs and for net operating income.
Explanation of Solution
While the contribution margin ratio is calculated as −
Thus, it can be seen that, contribution margin is the portion of the sales left after deducting variable costs for fixed costs and net operating income while, the contribution margin ratio the percent of each sales dollar is available for fixed costs and for net operating income.
Thus, the contribution margin and contribution margin ratio has been explained.
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Chapter 21 Solutions
FUNDAMENTAL ACCT PRIN TEXT+CONNECT CODE
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